Life insurance for chronic illness – what you need to know

There are many things to think about when it comes to long-term financial planning, from emergency funds to tax strategies, pensions to investments, and RRSPs to estate planning. For many families, life insurance is a key element of long-term financial planning that cannot be ignored. 

Life insurance is a safety net, ensuring that loved ones are financially protected in case of an unexpected loss. It is essentially a contract between a policyholder and insurer confirming that the policyholder will pay a predetermined amount of money each month or year in exchange for a life insurance policy, and the insurance provider will pay the beneficiaries of that policy a predetermined amount of money when the policyholder dies. 

Also read: What is life insurance in Canada? 

The process of being approved for life insurance and calculating the premiums are influenced by the applicant’s risk level. To assess this risk, insurance companies evaluate several factors, including health status, lifestyle, and medical history. Individuals with chronic illness naturally pose a greater financial risk to insurers, so for this group, navigating insurance assessments can be challenging. Still, it's an important step in securing peace of mind and financial security for their families.

How does life insurance work when you’re diagnosed with a chronic illness?

Many people purchase life insurance early in life because it's generally easier and less expensive to obtain when you're younger and healthier. Being young often means a lower likelihood of death or having developed chronic illnesses, which translates to a lower risk for insurance companies. This lower risk can lead to easier approval for regular life insurance policies at more affordable rates, making it a strategic move for long-term financial planning.

Many insurance policies offer chronic illness insurance, or critical illness insurance as an add-on to their standard life insurance policies. This type of insurance works to protect policyholders from the expenses related to developing a chronic illness. If you are covered by chronic illness or critical illness insurance, you can apply for a cash payout if you are diagnosed with a condition that is approved under your policy. 

There is usually a waiting period before a policyholder can make a claim to receive a chronic illness payout. This is meant to discourage people from applying for this coverage with an undisclosed, pre-existing chronic illness. 

What is considered chronic illness when it comes to life insurance? 

In 2021, 45.1% of Canadians were living with at least one chronic illness. According to the Public Health Agency of Canada, chronic illnesses are “persistent and generally slow in progression which can be treated but not cured.”

Being diagnosed with a chronic illness can have significant financial implications for a patient, including missed work and the need to purchase expensive equipment, supplements, medications and therapies, some of which may not be covered by the public health care system or their extended health benefits. 

Every policy is different, so it’s important to read the fine print before assuming you will be eligible for a chronic illness payout when you are diagnosed. 

However, some conditions are commonly considered a chronic illness. These include (but are not limited to):

Cancer: Canadian Public Health Service reports that in the past 25 years, 1 in 24 Canadians has been diagnosed with some form of cancer. 

Diabetes: You may be surprised to learn that almost one in 10 Canadians over the age of 20 has been diagnosed with diabetes. 

Epilepsy: Almost 300,000 Canadians live with epilepsy, a chronic illness that causes seizures that vary in size and severity. 

Arthritis: About 20% of the Canadian population over the age of 15 suffer from arthritis – that’s one in every five people! 

Other conditions often classified as chronic illnesses include heart disease, stroke, multiple sclerosis, depression, alcoholism, HIV and more.

How much does life insurance for chronic illness cost? 

For those who have not been diagnosed with a chronic illness, the cost of adding chronic illness insurance to your life insurance policy will vary significantly depending on risk factors including age, health status, and more. 

Based on data obtained from CAA and Manulife, a critical illness policy providing $25,000 in coverage for five major chronic illnesses could range in cost anywhere from $6.25 per month for a 20-year-old non-smoking male to $213.50 per month for a 70-year-old female smoker. Click here for a chart of estimated premiums based on age and smoking status. 

Keep in mind that this is not the same as a life insurance policy which pays out an after-death benefit. To find out how much life insurance costs for your specific case, be sure to compare personalized quotes with us today.

Does life insurance cover people who have already been diagnosed with a chronic illness?

So now you know what happens if you are diagnosed with a chronic illness when you are already covered by a life insurance policy, but what about those who suffer from chronic illnesses who do not yet have coverage?

If you have a chronic illness and are in the process of researching your life insurance options, you are not alone. 

Can you get life insurance with pre-existing conditions?

In many cases, people with a pre-existing chronic illness can still qualify for the two main types of life insurance: whole life insurance and term life insurance, although your premiums will be higher than a person who has never been diagnosed with a chronic illness. If you don't qualify, you can also consider guaranteed-issue life insurance policies which come with no medical exam – there may be coverage limits, but these plans can provide you with some form of protection for peace of mind. 

Also read: Life insurance for pre-existing conditions

What is term life insurance?

Term life insurance is a policy that provides coverage for a specific period, such as 10, 20, or 30 years. It's designed to offer financial protection to beneficiaries in the event of the policyholder's death during the term. If the policyholder survives the term, the coverage ends without value, and there are no savings or investment components.

What is whole life insurance?

Whole life insurance offers lifelong coverage and includes a cash value component that grows over time. This type of insurance guarantees a death benefit to beneficiaries and allows the policyholder to accumulate savings, which can be borrowed against or withdrawn under certain conditions.

What about disability insurance? 

While it is not considered a form of life insurance, people with chronic illness should also consider disability insurance. Disability insurance is designed to provide income if you're unable to work due to illness or injury. This type of insurance helps cover living expenses and financial obligations when you cannot earn an income, ensuring financial stability during difficult times. Disability insurance is often provided by employers as part of an employee’s group benefits total compensation package, but it’s important to read the details of that policy to ensure its coverage will meet your needs. 

The bottom line

Navigating life insurance with a chronic illness presents challenges, but it also offers vital opportunities for securing your family's financial future. It's essential to explore the available options, whether it's adding chronic illness or critical illness coverage to your pre-existing policy, or purchasing term life insurance or whole life insurance after being diagnosed with a chronic illness. Disability insurance is also worth considering, as it can provide some welcome income support during times of inability to work due to health issues. 

By understanding the nuances of each policy and considering personal health and financial goals, individuals can make informed decisions that ensure peace of mind and stability for themselves and their loved ones.

Also read

• The biggest life insurance misconceptions in Canada
• Can you take out life insurance on anyone?
• Why aren't more Millennials and Gen Z buying life insurance?