Critical Illness: Personal
Surviving a critical illness is quite common in today's advanced medical world.
On the way to recovery however, the financial obligations can be very difficult to cope with. Critical illness insurance is a product that has been designed to cover these financial obligations with a lump sum of up to $2 million.
A lump sum benefit is paid directly to the client tax-free upon medical diagnosis of a covered critical illness and not on the inability to work. The client ultimately decides how they will use the lump sum benefit.
Many Critical Illness plans offer a form of "forced savings" option whereby the insurer will return as much as 100% of all premiums paid (less policy fees) to the insured if a claim is not made by a stated period of time in the future. This option is referred to as a Return of Premium Rider.
Although it is largely assumed that critical illness benefits are received tax-free, there is currently no specific direction in the tax act regarding the taxation of critical illness policies. The insurance industry is working on recommendations to the Ministry of Finance that would see specific language added to the tax act confirming the tax-free nature of this benefit.