Critical illness insurance in Canada: how it works

Critical illness insurance pays you a lump sum if you are diagnosed with a covered serious illness, such as life-threatening cancer, a heart attack or a stroke, and meet the policy’s conditions for that illness. The money is yours to use however you need: treatment, time off work, the mortgage, or a spouse’s lost income while they care for you. On a policy you own personally it is generally received tax free, and unlike disability insurance it does not depend on whether you can work. It is the coverage that answers a question life insurance does not: what happens financially if you survive.

How critical illness insurance works

You choose a benefit amount when you buy the policy. If you are diagnosed with a covered condition, and the diagnosis meets the policy’s definition of that condition, the insurer pays the full amount in one payment. At most insurers, a full claim ends the policy.

The definitions are the heart of the contract. The Canadian Life and Health Insurance Association publishes benchmark definitions for 26 conditions, most recently revised in December 2024, which insurers adopt voluntarily. They set out exactly what counts: not every cancer is life-threatening cancer, and not every heart event is a heart attack. The federal Financial Consumer Agency of Canada warns that insurers may differ in how they define critical illness, so the wording in your own policy is what decides a claim.

What it covers

Full plans from major Canadian insurers cover about 24 to 26 conditions, and several insurers also sell basic plans covering a few core conditions at a lower price. In practice, a handful of conditions drive almost all claims. An industry study by the Canadian Institute of Actuaries, covering 12,820 claims at 11 Canadian insurers from 2012 to 2020, found the following shares of claims (counted by lives, with partial claims weighted by the amount paid):

Cancer, heart attack and stroke together made up 87 percent of claims, and the average claim was about $86,500. Cancer is common enough to explain why: about two in five Canadians will develop cancer in their lifetime, according to the Canadian Cancer Society, and with five year net survival at about 64 percent, many people live through it and face the costs that follow.

The 26 benchmark conditions

The Canadian Life and Health Insurance Association’s benchmark definitions, revised in December 2024, cover these 26 conditions:

Insurers use these definitions voluntarily and can word their own differently, so a full plan may cover 24 to 26 conditions, not always the same ones, and sometimes adds others. Some insurers pay coronary angioplasty only as a partial benefit rather than the full amount. Check the list and definitions in the policy you are offered.

Does critical illness insurance cover…?

Cancer? Life-threatening cancer, yes, and it is the condition behind most claims. The benchmark definition excludes several early-stage cancers from the full benefit, including non-melanoma skin cancers that have not spread, melanomas 1.0 mm thick or less that are not ulcerated and have not spread, and early prostate and thyroid cancers. Many insurers pay a partial benefit for some of these instead.

Skin cancer? Most skin cancers do not qualify for the full benefit: non-melanoma skin cancers without spread to lymph nodes or other organs are excluded, and so are thin melanomas that are not ulcerated and have not spread. Some insurers pay a partial benefit for early melanoma.

Diabetes? No. Diabetes is not one of the 26 conditions. Some of its complications are, such as kidney failure, heart attack or stroke, if they meet the definitions. Diabetes can also affect whether you are approved; see our guide to critical illness insurance with a pre-existing condition.

Multiple sclerosis? Yes, it is a covered condition and about 3 percent of claims, with a one year exclusion period after the policy starts under the benchmark definitions.

Heart surgery? Coronary artery bypass surgery, heart valve replacement or repair, and aortic surgery are covered conditions. Each is defined as undergoing the surgery, so the benefit follows the surgery itself, after any survival period, rather than the date a heart problem was first found. Procedures done through a catheter, such as a valve replaced through an artery, do not count as surgery under these definitions.

Mental health conditions or back injuries? Mental health conditions are not covered conditions. A back injury is covered only if it leads to a listed condition, such as paralysis of two or more limbs. Neither pays because you cannot work, which is why critical illness insurance is not a substitute for disability insurance.

The rules that decide a claim

The survival period. Under the benchmark definitions, you must survive 30 days after diagnosis before a claim is payable, and insurers can change this condition by condition. Heart attack, stroke and heart surgery almost always carry a 30 day survival period. At several major insurers we reviewed, life-threatening cancer has no survival period, so the benefit is payable on a diagnosis that meets the definition. Check your own policy, because some still apply 30 days to cancer. Time spent on life support does not count toward a survival period.

The 90 day cancer exclusion. If, in the first 90 days after the policy starts or is reinstated, you are diagnosed with cancer, or have signs, symptoms or investigations that lead to a cancer diagnosis, most policies permanently exclude cancer, including cancers the policy would not otherwise cover. The policy stays in force for the other conditions, provided you report the diagnosis as the policy requires. The benchmark definitions apply a similar one year exclusion to multiple sclerosis and Parkinson’s disease.

Who makes the diagnosis. The benchmark definitions require a diagnosis by a specialist licensed in Canada or the United States, or another jurisdiction the insurer approves.

Exclusions. Policies list general exclusions, such as self-inflicted injury and drug or alcohol misuse, and your own health history can lead to a named exclusion for a specific condition. The industry’s consumer guide notes that broad pre-existing condition clauses are typically found in group or association plans. In an individual policy, your history is handled through the application, so answer every question fully: a policy can be voided for misrepresentation. Read the exclusions page before you sign.

Early-stage and partial benefits

Many cancers are now caught early, at a stage that does not meet the definition of life-threatening cancer. Most major insurers pay a partial benefit for a list of early-stage conditions, commonly 15 to 25 percent of the benefit up to a maximum of $50,000. At several insurers the partial payment does not reduce the full benefit available later, while at least one deducts it from later payments. The 2024 benchmark update moved more early prostate and thyroid cancers outside the full cancer definition, so whether a cancer qualifies for the full or a partial benefit depends on the insurer and the date of your policy.

Terms, amounts and riders

Critical illness coverage is sold for a term, such as 10 or 20 years, to age 65 or 75, or as long-term coverage to age 100, depending on the insurer. Minimum amounts are commonly $10,000 to $25,000, and maximums at major insurers range from $1 million to $4 million. What coverage costs at your age is in our guide to critical illness insurance costs.

Common riders include:

• Return of premium on cancellation or expiry. Refunds part of your premiums if you cancel after a set number of years, rising to the full amount after a period such as 15 years, or all of them if you keep the policy to a set age, provided no full claim has been paid. Partial payments may reduce the refund.
• Return of premium on death. Refunds premiums to your beneficiary if you die without having made a claim.
• Waiver of premium, which covers your premiums if you become disabled.
• Children’s critical illness coverage, either as a rider on a parent’s policy or as a separate policy for the child.

Return of premium riders can add substantially to the cost, and neither the Canada Revenue Agency nor Revenu Québec has issued a formal ruling on how a refund is taxed, so ask how a refund would be taxed before you rely on one.

How the benefit is taxed

On a policy you own personally, a critical illness benefit is generally received tax free. There is no specific exemption: the Income Tax Act does not directly address critical illness insurance, and the Canada Revenue Agency has said that a policy providing benefits only on critical illness is sickness insurance and that its proceeds would generally not be included in the policyholder’s income. That view is not a binding ruling, and the CRA has not settled how policies with a return of premium on death rider should be treated. Premiums are a personal expense, so they are not deductible, and because critical illness insurance is not a private health services plan, they do not qualify for the medical expense tax credit.

The picture changes when an employer or corporation pays:

• Premiums your employer pays for an individual policy you own are a taxable employment benefit, and since 2012, federal tax rules treat employer contributions to group sickness and accident plans as taxable unless they fund periodic wage-loss benefits. The benefit itself remains tax free to you.
• A corporation that owns the policy cannot deduct the premiums, receives the benefit tax free, but gets no capital dividend account credit for it, so paying the money out to an owner is taxable as a dividend, salary or shareholder benefit.

Business arrangements deserve an accountant’s review.

Critical illness, disability and life insurance

The three products answer different questions:

• Critical illness insurance pays a lump sum on diagnosis of a covered condition, whether or not you can work.
• Disability insurance pays a monthly income that replaces part of your earnings, while illness or injury keeps you from working.
• Life insurance pays your family if you die.

Our guide to life insurance vs disability insurance covers how the first two fit together, and whether critical illness coverage is worth it for you is the subject of is critical illness insurance worth it.

Getting approved

Critical illness underwriting asks about your health and often your family’s, because family history is a strong predictor of several of the conditions it covers. Applications can be approved as applied for, approved with a higher premium, approved with an exclusion for a specific condition, postponed, or declined. Approval is often harder after a cancer or heart diagnosis than it is for life insurance; our guide to life insurance after cancer explains the sequencing.

If full underwriting is not an option, several insurers sell simplified critical illness products with a short health questionnaire and lower maximums, and at least one is open to some cancer survivors. Our guide to critical illness insurance with a pre-existing condition covers the options in detail.

Frequently asked questions

What does critical illness insurance cover?

A lump sum if you are diagnosed with a covered condition that meets the policy’s definition. Full plans from major Canadian insurers cover about 24 to 26 conditions, and basic plans cover a few core conditions. Cancer, heart attack and stroke account for most claims.

Is a critical illness benefit taxable in Canada?

Generally not, on a policy you own personally. Premiums are not deductible and do not qualify for the medical expense tax credit, and premiums your employer pays for you are usually a taxable benefit.

How long do you have to survive to collect?

For heart attack, stroke and heart surgery, usually 30 days after diagnosis. At several major insurers, life-threatening cancer has no survival period. Check the policy, because insurers can set different periods.

What happens if cancer appears in the first 90 days?

Most policies permanently exclude cancer if you are diagnosed with cancer in the first 90 days, or have signs, symptoms or investigations in that period that lead to a cancer diagnosis. The policy stays in force for the other covered conditions.

Can you claim critical illness insurance more than once?

Usually not for the full benefit: most policies pay one full claim and then end. Many pay partial benefits for early-stage conditions, and a few products allow more than one payment, for example one for cancer and one for a heart condition.

How is critical illness insurance different from disability insurance?

Critical illness insurance pays a lump sum on diagnosis of a covered condition, whether or not you can work. Disability insurance pays a monthly income that replaces part of your earnings, mainly while you cannot work or can only work part of the time.

More critical illness guides

• Critical illness vs disability insurance
• Life insurance with critical illness: riders vs separate policies
• Mortgage critical illness insurance vs your own policy
• Critical illness insurance through work
• How to make a critical illness insurance claim
• Critical illness insurance myths

What to do next

The right benefit amount depends on what a serious illness would cost you: months of reduced income, treatment and travel, and a household that keeps running. A licensed advisor can compare definitions, partial benefits and riders across insurers, which matter as much as the price.