Critical illness vs. disability insurance

Here’s what you need to know about the differences between critical illness and disability insurance.

What is critical illness insurance?

Critical illness insurance pays you a tax-free, lump sum if you are diagnosed with a critical illness listed in your policy.

Being diagnosed with a critical illness is a devastating and life-changing event. But today, 60% of Canadians diagnosed with cancer, 80% of heart attack and 75% of stroke victims will survive. However, it has been noticed that patient recovery was primarily affected by financial worries rather than medical complications. Critical illness insurance helps people to remove financial stress and focus on recovery.

Even though a person is experiencing a loss of income, bills and mortgages still have to be paid, not to mention the additional costs that go along with a critical illness such as prescribed drugs, special treatment, home help, child care, etc. Critical illness insurance is meant to help cover medical expenses and ease the financial stress of a difficult situation.

While most people are familiar with the critical illnesses of cancer, heart attack and stroke, a typical policy covers up to 26 medical conditions.

Today, many insurance companies offer non-medical and budget-friendly basic critical illness plans that only cover the four major illnesses: life-threatening cancer, heart attack, coronary artery bypass surgery, and stroke.

What is disability insurance?

If a long-term disability prevented you from making a living, for how long you and your family could survive without your regular income?

Disability insurance is meant to replace a substantial portion of your income should you become injured or ill and it affects your ability to work. It provides you with consistent monthly payments while you recover from your ailment or until your pre-determined coverage period ends – whichever comes earlier. Disability insurance allows you to focus on getting back on your feet without extra financial stress.

It is a straightforward, affordable and easy to purchase plan that can help protect your income if you become injured or ill. It is specially designed for self-employed people: truck drivers, contractors, farmers, fishermen, accountants, software engineers, part-time workers and many others occupations and professions.

The differences between critical illness and disability insurance

1. Critical illness insurance does not cover injuries

In contrast to disability insurance, critical illness insurance does not cover injuries. Instead, it provides a lump sum payment if you’re diagnosed with any illnesses covered on your policy. The diagnosis of illness is the most important factor here, as opposed to whether it keeps you from working. Once the illness has been diagnosed, and you’ve received your benefit payment from the policy, you won’t generally be asked to prove whether you can or cannot work.

2. Critical illness insurance isn’t based on your income

Critical illness insurance isn’t based on your income. The maximum benefit amount you’ll receive for your illness is detailed in your policy document. Some conditions will provide a bigger benefit than others, and before you choose a policy, you’ll want to see what the benefit amounts and covered illnesses are. For example, while a family history of heart disease doesn’t guarantee you will also get it, it’s worth considering if it’s covered in your policy.

3. Disability insurance provides monthly payments based on your income

The most common type of disability insurance is long term disability insurance. Long-term disability policies can help provide a monthly income for several years or longer. They typically do not replace 100% of your income, but they can provide resources to reduce the impact of an injury or illness that keeps you from working.

4. You can only make one critical illness insurance claim

The benefit is only paid once, and coverage terminates upon payout of benefits. You would not be able to make multiple claims under your critical illness policy as coverage ends once you have been diagnosed with one of the listed conditions and made a claim. Critical illness insurance differs from other types of disability insurance where you are paid weekly or monthly and your coverage remains in place even after you have made a claim.

5. Critical illness insurance pays you only once

Insurance pays you a tax-free, lump sum if you are diagnosed with a critical illness listed in your policy.

Disability insurance is not an alternative to critical illness insurance

Disability insurance provides a monthly benefit in the event that you’re unable to work due to an injury or illness, whereas critical illness insurance provides a lump sum benefit in the event that you develop one of the covered conditions and survive the survival period. This means that the bases that these two types of insurance cover are different and do not necessarily overlap, so they cannot be used as an alternative to another.

When comparing disability insurance and critical illness insurance is that one isn’t a replacement for the other. One option also isn’t necessarily better than the other. They provide different types of coverage and having both may give you more protection and additional peace of mind.

If you’re trying to decide between disability insurance and critical illness insurance, you may want to consider getting both. They don’t offer the same kind of coverage, so choosing one could leave you unprotected in other areas of your life.

Do you need disability insurance if you have critical illness insurance?

Generally, critical illness insurance is more essential for people who can’t get disability insurance coverage. For example, homemakers, unemployed individuals, children and seniors, and people working high-risk jobs may all have difficulty buying disability insurance, which would provide monthly payments in the event that they can no longer work.

Actually, you should always prioritize disability over critical illness insurance, especially if you are self-employed or don’t have group disability coverage. Your ability to earn an income is your most valuable asset, and should the unexpected happen, the only way to protect yourself from the financially devastating effects of a permanent disability causing you to be unable to work is with disability insurance.