Critical Illness vs Disability Insurance in Canada

Learn more about the difference between critical illness insurance and disability insurance, and which is right for you.

10 Minute read

Originally published: August 8, 2022
Updated: May 29, 2023

critical illness vs disability insurance in canada

Critical Illness vs Disability Insurance in Canada

Learn more about the difference between critical illness insurance and disability insurance, and which is right for you.

10 Minute read
Originally published: August 8, 2022
Updated: May 29, 2023

critical illness vs disability insurance in canada

While browsing for life insurance options that will provide complete coverage for any unexpected event, you may have stumbled across either critical illness and disability insurance options or as riders. While they may seem similar at first glance, these two types of coverage offer different benefits and are designed to meet different needs. So, how do you know which one is right for you? In this article, we’ll take a closer look at the differences between critical illness and disability insurance, and help you determine which one makes the most sense for your unique situation.


What is critical illness insurance and what can it cover?

Critical illness insurance is an insurance policy that pays you a tax-free, lump sum if you develop a specified illness, experience a health event such as a stroke, or undergo treatment for those situations during your agreed-upon coverage period. The coverage package can include any or all of the more than 26 critical illnesses, including cancer (and all its forms), aplastic anemia, blindness, kidney failure, heart attack, and more.

Critical illness insurance acts similarly to life insurance in that you can use the benefit amount however you see fit, regardless of whether it’s directly related to your critical illness. For example, you could use the money to cover the costs of your treatment, pay off your mortgage, replace your income, or take a much-needed vacation – the choice is yours.

And, while not all critical illnesses have a high mortality rate, as a whole, they are still quite common in Canada. This type of insurance gives you the financial independence to make decisions that are best for your recovery, family, or capitalizing on the time you have left.

Additionally, critical illness insurance can be purchased as a standalone policy or as a rider to an existing life insurance policy. If you’re not sure if critical illness insurance is for you, check out our guide.

What is disability insurance and what can it cover?

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 is designed to help you cover your living expenses, such as rent, mortgage payments, and utilities, while you are unable to work.

Disability insurance provides you with consistent monthly payments while you recover from your ailment or until your pre-determined coverage period ends – whichever comes earlier.  It covers a range of disabilities, including physical, mental health, cognitive, and chronic illnesses, which can prevent individuals from working and earning income.

Like critical illness insurance, you can use the benefit on whatever you see fit, but the monthly payment structure is meant to mimic your paycheque and is typically intended to cover your mortgage or rent, and other living expenses while you are on the road to recovery.

There are several varieties and types of disability insurance – but the most common type of disability insurance people consider 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. 

If you’re not sure if disability insurance is right for you, or for a more in depth guide to disability insurance, check out our full guides. 

What is the difference between critical illness and disability insurance in Canada?

Although both types of insurance provide an insured person with financial protection in the event of certain unique circumstances, the circumstances in which they will provide said protection is different. Critical illness insurance provides a one-time lump-sum payment if you are diagnosed with a specific illness, while disability insurance provides a regular income if you are unable to work due to an injury or illness. This means that the main difference between critical illness and long-term disability insurance coverage is how you can qualify to receive payments from the insurance company. 

The inability to do your job is the qualifying event for disability insurance, whereas a diagnosis of a serious illness qualifies you for a claim payout for critical illness insurance.

differences between critical illness insurance and disability insurance

To compare the two: 

Critical illness insurance: 

  • Is claimable if you are diagnosed with a covered condition and life beyond the survival period

  • Has a one-time lump sum payment

  • Anyone can apply, and can provide coverage up to age 100

Disability insurance: 

  • Is claimable if you have any illness or injury that leads to a loss of income

  • Provides monthly benefits for the period of time you are unable to work

  • Employed and self-employed people can apply, and most policies lapse at at 65

Why is disability insurance not an alternative to critical illness coverage?

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. 

Not everyone’s recovery costs are the same. In addition to the possibility of a leave of absence from your job, a critical illness can sometimes mean that you’re left with the costs of recovery. This could include a need for costly assistive devices, or even travel expenses—things disability insurance may not cover.

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

It’s good to cover both bases and get some type of both because they cover different things. Having both kinds of insurance can be vital in giving you the best financial protection layered with a regular life insurance option.

Oftentimes, 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. But having disability insurance alone doesn’t lessen the financial impact of the diagnosis and treatment of a serious illness. A critical illness policy will provide coverage where disability insurance isn’t available.

Both types of insurance can help you maintain financial stability, pay for medical bills and other expenses, and provide peace of mind knowing that you and your family are protected. Not having disability or critical illness insurance can be a significant risk, both for you and your family. Without either type of insurance, you may be unable to pay for medical bills and other expenses associated with an injury or illness. This can lead to financial hardship and may even result in bankruptcy.

That said, 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.

When Could Both Types of Insurance Make Sense?

Critical illness and disability income insurance both help provide money when health conditions necessitate it, but they work differently. As such, having both types of policies may help you maximize coverage: if your condition qualifies for both, you might receive a lump payment if you have certain conditions and a monthly income if you can’t work. If you have the financial flow to cover both premiums and you want to help lower risk, purchasing both types of coverage can make sense.

However, there is no assurance that you will experience a medical condition covered by both of the two types of insurance. For instance, critical illness insurance will not provide payments if you are unable to work because of an injury rather than a specific sickness. Alternatively, you could be suffering from a serious illness that doesn’t keep you from working. A critical illness policy’s lump amount can help with bills in this situation, although a disability policy could not pay anything.

An example of when you might need both critical illness and disability insurance is if you want to be protected in case you experience a critical illness like cancer, which may require significant medical treatments and time off work (covered by critical illness insurance), but also want coverage for disabilities that may result from the illness and prevent you from working in the long term (covered by disability insurance).

Having both types of insurance can help ensure financial stability during a challenging time and provide support for medical expenses and ongoing living costs.

When would one type of insurance pay a claim but the other won’t?

Although there is some overlap between critical illness and disability insurance, not both of them will payout all the time. Often, only the critical illness policy will pay. For example, many people diagnosed with life-threatening cancer may only miss a couple of months of work for treatment. In this situation, they will only receive the critical illness benefit.

Of course, the opposite can also happen. For example, major depression can leave you unable to work. While you’ll receive disability benefits, mental illness is not a covered condition in critical illness policies. As a result, only the disability policy will pay. Sprains, strains, and injuries are some other common causes of disabilities not covered by critical illness insurance.

Frequently Asked Questions (FAQs) about critical illness vs disability insurance

No, critical illness insurance does not cover disabilities from injuries you sustain. If you became disabled and only had a critical illness policy, you wouldn’t receive any payout. You only receive a critical illness payout if you qualify for it, by being diagnosed with one of the covered conditions and surviving the survival period.

Typically, you can receive short-term disability insurance through a plan offered by your work. It usually offers coverage for up to 6 months if you are sick or hurt. Short-term disability waiting periods are often shorter than long-term disability waiting periods.

Long term disability provides disability benefit payments over a longer period of time (over 6 months). Although an employer may provide long-term disability insurance, the coverage might not be sufficient. It’s important to carefully go over that coverage with your employer to make sure you have enough. Individual disability insurance guarantees that, should you become disabled for a longer period of time, you will be completely covered.

If you are worried about the financial impact that developing a certain condition can have on you and your loved ones, you might want to think about purchasing critical illness insurance or adding a critical illness rider to your policy. 

As you evaluate critical illness insurance, consider reviewing your existing health coverage benefits. Your health-related medical costs might already be partially covered. However, you can also incur extra out-of-pocket expenses, such as copays and pharmaceutical costs, as well as charges for caregivers or essential home changes. 

Insurance against disability income can help you avoid losing your income. If you or your family depends on your income, you could think about using disability income insurance to reduce the risk of losing it completely. For instance, after losing your salary, would you be able to cover housing, food, and other necessities? Furthermore, how long? Additionally, losing your capacity to work may make it more difficult to save for financial objectives like retirement or higher education.

Managing what’s important to you

Building and finding the right package for your financial protection can be difficult if you aren’t sure of your options. When you understand the difference between critical illness and disability insurance, you can choose which risks are most concerning to you and pick the coverage that makes the most sense. Speaking with a financial representative or insurance broker can help you identify the best path for you.

At Protect Your Wealth, we would be more than happy to provide further analysis for your specific circumstances. We’ve been providing expert life insurance solutions since 2007, including term life insurance, critical illness insurance, and disability insurance. Or, if you are interested in learning more about the options available to you, check out our guide on the best life insurance companies in Canada.

Contact Protect Your Wealth today at 1-877-654-6119  to learn more about your options! We’re proudly based out of Hamilton, and service clients anywhere in Ontario, British Columbia, and Alberta, such as Maple Ridge, Medicine Hat, and St. Catherines

Talk to an advisor today.

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