Is Critical Illness Insurance Taxable? Is it Worth the Cost?
By: Benefits by Design | Tuesday August 3, 2021Updated : Tuesday November 7, 2023
Critical Illness Insurance is a benefit with a growing niche. As the likelihood of a Canadian developing a chronic condition increases, so too does the opportunity for Critical Illness Insurance to provide financial protection.
But does that protection come at a cost, and is it worth it? Let’s find out.
What is Critical Illness Insurance?
Critical Illness (CI) Insurance provides financial assistance upon diagnosis of a covered condition in the form of a large, lump-sum payment. You get sick, you get paid. This payment can be used on anything the recipient deems appropriate, from medications and hospital costs, to the paying off of debt, and more.
This financial assistance allows the person diagnosed to focus on their recovery and less on the financial hardships a serious diagnosis can bring.
What is Critical Illness Insurance and What is Covered?
Is Critical Illness Insurance Taxable?
When people talk about the “taxable” status of group benefits, there’s two things to consider: premium payments (the cost of benefits) and benefits payouts (reimbursement or payments).
The large, lump-sum payment that is made upon diagnosis of a covered condition is provided completely tax-free. If your policy covers you for up to $50,000 and you’re diagnosed with one of the covered conditions, you will receive $50,000.
Your premium payments are taxable. If you pay $5.00 a paycheck for Critical Illness Insurance twice a month, that extra $10.00/month ($120.00/year) is considered taxable income.
Group Benefits Taxation: What are Non-Taxable and Taxable Benefits?
Is Critical Illness Insurance “Worth It”?
It’s a question working Canadians and employers will need to answer for themselves, but in our (admittedly, slightly biased opinion), the answer is yes. Here’s why:
#1. Support When You Need it Most
CI Insurance provides significant financial assistance during one of the most stressful and potentially costly periods of someone’s life. If you were diagnosed with a serious condition, the last thing you’d want on your mind is, “How do I pay for all of this?” or “How do I support my family while I’m not working?”
The ability to focus on rest and recovery rather than money cannot be overstated. Plenty of medical studies have proven that a positive attitude and temperament improves health outcomes and life satisfaction across a spectrum of conditions.
#2. Chances Are You (and Your Employees) Are Going to Need It
We don’t relish pointing this out, but the likelihood of a Canadian being diagnosed with a chronic disease or critical illness is increasing.
Scary statistics that will make you rethink not having critical illness insurance
Cancer, heart attack, and stroke are among the most common — and severe — diagnoses affecting Canadians today, all of which can be covered under a Critical Illness benefit.
- Cancer is the leading cause of death in Canada, accounting for 30% of all deaths in the country.
- Approximately 50% of Canadians will develop cancer in their lifetime.
- 600,000 Canadians are living with heart failure, and 50,000 more are diagnosed each year.
- Stroke is the leading cause of disability in Canada and the third leading cause of death.
With the increasing prevalence of major illnesses and chronic diseases in Canada, financial protection through a Critical Illness Insurance benefit makes more and more sense every day.