I have disability insurance. Why do I need critical illness insurance?

Can you take a 20%-30% reduction in your income today and still maintain your current lifestyle?

 

Critical illness and disability insurance no doubt go hand in hand. One type of insurance cannot replace the other.

 

What are the fundamental differences?

 

Disability insurance (or LTD - Long Term Disability) is designed for the actively working individual. It replaces a portion of lost wages due to illnesses or accidents that meet the policy's definition for benefit eligibility. The benefit is paid on a monthly basis, and can often take up to three months for payments to begin.

 

Critical illness insurance is available to a broader audience, such as professionals, employees, business owners, part-time or seasonal workers, homemakers and university students. A tax-free lump sum benefit is paid out usually 30 days after the initial diagnosis of a policy-defined illness.

 

What are the financial gaps that must be filled?

 

1. For many people stricken with a critical illness, the first few months following diagnosis can often be the most traumatic, and expensive. There are urgent and pressing needs that arise, such as:

• out of country or non-government covered treatments
• specialized medical treatment, private nursing or child care
• alterations to your home or automobile to accommodate your special needs
• payments to your mortgage, business loans, other debts and / or
• anything else requiring immediate funds

Because disability insurance only pays out a monthly benefit, critical illness insurance is needed provide that initial lump sum benefit to address the above mentioned needs. There are no restrictions as to how the benefit must be used or spent. The amount paid out can be used for any purpose, from immediate health-related costs to more general financial concerns such as looking after business, assets, or family - freeing you to concentrate more closely on getting healthy.

 

2. Disability insurance only covers a portion of your income, generally up to a maximum of 80% of your net income for long term disability. For most Canadians, this is simply not enough to meet daily expenses. Can you take a 20-30% reduction in your paycheck today and still maintain your current lifestyle?

 

Critical illness insurance can be used to offset the portion of income that disability insurance will not cover. How many years of income should you protect? Who is to say you will be disabled for 1, 5, 10 years, or for life? Since the average length of disability is about 3 years, the minimum years of protection should be 3 years. However, if you're age 40, wouldn't it be stressful to know that your last income check could be at age 43? Therefore, if budget permits, you should consider protecting your income to age 65.

 

3. Disability insurance is usually available only to people in work, so if you lose your job or take a career break you may not be covered.

 

However, you own your critical illness plan. It cannot be cancelled by anyone but yourself. Once you obtain your policy, it becomes completely independent from any changes in your life, such as a loss of employment, change of career, or deterioration of health.

 

Next page >

 

Return to critical illness insurance education center.

 

Return to disability insurance education center.

 

 

 

Click a link below to jump to another related article:

 

What features should I look for in a critical illness insurance plan?

 

How much critical illness insurance do I need?

 

Contact a professional broker for your free consultation.