Most Canadians know that they need to build a financial plan around future needs. That usually involves putting aside cash for both short and long-term savings, as well as RESPs for the kid’s education. But those future needs should also include some planning in case you get sick with a serious illness. A Canadian Cancer Society study published earlier this year predicted that Canadian’s have a one in two chance of being diagnosed with cancer in their lifetime, which can be a heavy financial burden if you aren’t prepared.

The best way to safeguard your finances is through critical illness insurance, which is set up in a similar fashion to life insurance. You pick a coverage limit you can afford, pay premiums during the lifetime of the policy and get a one-time payout. Unlike life insurance where your family receives the funds when you are gone, “living benefits” insurance pays out tax-free when you are diagnosed with a covered illness. You can then use those funds to cover the cost of your salary, or any shortfall from your employer paid benefits, as well as any treatment options or experimental drugs not covered by MSP or your existing plan. You never want to be in a position where you have to decline a treatment option because you can’t afford it.

Isn’t critical illness cost-prohibitive?

In terms of policy size, I generally recommend having enough critical illness insurance to at least cover your salary for one year. Unfortunately, the average Canadian can only manage for a month or less before dipping into retirement savings or going into debt.

While premiums on critical illness insurance are typically more expensive than life insurance, taking out a “return of premium” rider on the policy means you can get what you’ve paid into the policy back (less interest) if you never make a claim by the policy’s maturity date. This means you really aren’t losing money and a payout at retirement (or the age you chose for the policy to mature) can also provide a much needed influx of cash.

Before making any decisions on coverage, I recommend speaking to an accredited professional who can take a holistic view of your entire financial plan to ensure you are meeting your family’s needs in the best way.

Nicole Sollitt is a Life Insurance Specialist at Valley First, a division of First West Credit Union, and advises families and business owners on their personal insurance needs across the Okanagan Valley.