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Critical Illness Insurance vs. Disability Insurance

What Are the Differences Between Critical Illness Insurance and Disability Insurance?

There are a lot of insurance products on the market, and it can sometimes be difficult to know which ones will best suit your needs.  Two products that often confuse people are critical illness insurance and disability insurance.  While there are some common aspects between these types of coverage, they are fundamentally different products.

The best approach to choosing between insurance products is to contact knowledgeable life and health insurance experts for guidance and price quotes.  Qualified financial advisors can help you understand the different insurance products available, and how each will affect your financial future.   However, here is a quick overview of these two types of insurance, and their differences.

Critical Illness Insurance vs Disability Insurance

1. Critical Illness Insurance

Critical illness insurance is intended to provide coverage against the huge medical costs that can come with the diagnosis of a life-threatening medical condition such as cancer, heart disease, or a stroke.  This is vital because the costs associated with medical emergencies such as these can be absolutely debilitating if you aren’t prepared.

Critical illness coverage pays out as a one-time lump sumrather than being doled out over time.  The payment is made very quickly after a confirmed diagnosis of a covered disease, generally approximately 30 days.  This gives the insured, and their family, much better financial stability in what could otherwise be a disastrous situation.

Once the insurance money is disbursed, it is yours to do with as you please.  The intention is that the funds be used to pay for care itself, but they can be used for numerous different financial challenges that might come with a critical illness.  For example:

  • Paying directly for treatment
  • Paying for longer-term care or rehabilitation
  • Paying for in-home care
  • Replacing lost income during recovery
  • Covering childcare or other responsibilities you cannot currently meet
  • Paying the mortgage or other must-pay obligations

You could potentially even use the funds to get medical care outside of Canada, should there be a specific hospital or specialist you need to seek out.

When purchasing critical illness insurance, be aware that different packages will include different covered diseases/conditions.  You may want to consult with your doctor to become more familiar with your own risk factors, and which critical illnesses are most likely to threaten you.  This will help you choose wisely when balancing insurance costs vs covered illnesses.

2. Disability Insurance

Disability insurance also deals with medical issues, but it’s focused on the long-term.  This form of insurance is intended to be an income replacement if a person becomes disabled in a fashion that prevents them from working over a period of months or years.

So, it serves the same purpose as critical illness insurance, in terms of providing financial support, but disability insurance is paid monthly.  The amount of the payout is generally dependent on the cost of the insurance premiums but may also be limited or influenced by other factors such as riders and add-ons.  Depending on the terms of the coverage, and the severity of the person’s disability, it could potentially be paid out until the person reaches retirement age – generally 65.

One of the most critical factors to focus on when purchasing disability insurance is the insurer’s definition of “disability,” and what conditions they consider to be debilitating. Nearly any policy will cover the most extreme cases, such as paralysis or dismemberment, but may or may not cover conditions such as cancer or heart disease.  This is something to be negotiated with the provider and, generally, more expensive policies will cover more sources of disability.

Other factors that influence the cost and coverage are riders you might add to the policy.  For example, many policies have an option to guarantee your payouts increase alongside the cost of living.  Or you might be able to get a provision which allows you to get a partial or total payout, should you reach retirement age without ever needing to make use of the policy.

These are the sorts of factors and issues that a qualified financial advisor can help you sort through.

Critical Illness Insurance And Disability Insurance Ontario

Can A Person Get Both Critical Illness and Disability Insurance?

YES!  There are obviously many factors to be considered, but all things being equal, someone who is currently healthy could most likely purchase both types of coverage.

This is, in many ways, the best option – particularly if you know you have a family history of potentially debilitating diseases.  The critical illness insurance would pay for the medical bills, then the disability insurance would cover your day-to-day costs during recovery or even beyond.  This won’t just help you, it will also help your friends and family as they assist in your recovery.

DFSIN Toronto West Is Here to Help

If you need critical injury insurance, disability insurance, or other forms of health coverage, contact us directly to receive a free quote.