What is the difference between life and critical illness insurance?

Life and critical illness insurance are two strong pillars of your financial protection, each serving a distinct purpose. Life insurance guarantees a financial safety net for loved ones after your demise, covering funeral costs, debts, and living expenses.

On the other hand, critical illness insurance provides a lump sum payout upon diagnosis, offering support during your lifetime, and easing the financial burden of treatment and lost income. But what should you choose? Or should you take both? Read on!

In this guide, we define the key differences between life and critical illness insurance, their pros, cons, and coverage. You can also use our free comparator to explore life and critical illness insurance policies from multiple providers and get personalized quotes in no time.

What is life and critical illness insurance?

Life insurance is a legally binding contract between an insurance company and a policyholder where the company guarantees a financial payout (death benefit) to designated beneficiaries upon the policyholder's death.

• It offers financial security for your loved ones after your passing, covering expenses like funeral costs, debts, mortgages, and living expenses. 
• There are two types of life insurance you can get: term life (provides coverage for a specific period) and whole life (permanent coverage with cash value accumulation).

Critical illness insurance is a form of insurance that provides a lump sum payment upon diagnosis of a critical illness outlined in the policy (e.g., cancer, heart attack, stroke).

• It offers financial support during your critical illness, covering treatment costs, lost income, and other expenses.
• It also provides peace of mind and allows you to focus on your recovery without financial burdens.

Before choosing any plan, make sure to compare different policies — their rates and coverage. It will help you get a better deal. You can use our free comparator for the same and also get free personalized quotes right here.

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What are the key differences between life and critical illness insurance?

Life insurance and critical illness insurance, while both offering financial protection, serve different purposes and have distinct payout triggers.

Here's how they differ from each other:

Feature	Life Insurance	Critical Illness Insurance
Payout Trigger	Death	Diagnosis of a covered critical illness
Purpose	Financial support for loved ones after death	Financial support during critical illness
Benefits	Lump sum or income stream for beneficiaries  Covers expenses like funeral costs, mortgages, debts, and living expenses	Lump sum payout upon diagnosis  Manages financial burdens of treatment and lost income  Allows focus on recovery
Considerations	Term life or whole life options  Term life coverage ends after a specific period, whole life offers permanent coverage and builds cash value Premiums are typically higher than critical illness insurance	Covers specific critical illnesses listed in the policy  Premiums are generally lower than life insurance  No payout to beneficiaries if you survive the illness

In short:

• Life insurance pays out after death, while critical illness pays out during your lifetime upon diagnosis.
• Life insurance supports loved ones after your passing, while critical illness supports you during your illness.
• Life insurance typically offers a lump sum or income, while critical illness offers a one-time lump sum.
• Life insurance premiums are generally higher due to the broader coverage.

What is mortgage life and critical illness insurance?

Mortgage life and critical illness insurance (MLCI) is a type of insurance product that specifically protects your mortgage in case of your death or diagnosis of a critical illness.

Also known as life and critical illness insurance for a mortgage, it combines two components: life insurance and critical illness insurance.

Here are some key advantages of MLCI:

• Combines two essential coverage types in one package.
• Offers affordable premiums compared to separate policies.
• Provides peace of mind for both you and your loved ones.

What is the average cost of life and critical illness insurance?

The cost of life and critical illness insurance in Canada varies significantly depending on several factors, including your age and health status.

Here is a quick overview of all the factors that can influence the cost:

Life insurance

• Your age: Premiums increase significantly with age.
• Your health: Pre-existing conditions can lead to higher premiums or even denial of coverage.
• Smoking status: Smokers pay significantly higher premiums.
• Term or whole life: Term life is much cheaper, but offers temporary coverage. Whole Life offers permanent coverage and builds cash value but with higher premiums.
• Coverage amount: The higher the desired lump sum payout, the higher the premium.

If you think life insurance is the way to go, you can explore the best life insurance plans in Canada and get free personalized quotes right here using our comparator below.

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Critical illness insurance

• Your age: Similar to life insurance, premiums increase with age.
• Your health: Pre-existing conditions may significantly impact your eligibility and premiums.
• Smoking status: Smokers typically pay higher premiums.
• Number of covered illnesses: More comprehensive policies covering a wider range of critical illnesses will cost more.
• Coverage amount: The higher the desired lump sum payout, the higher the premium.

To give you a better idea of the cost, here are some general ballpark figures for monthly premiums in Canada:

Insurance Type	Coverage Amount	Monthly Cost Range	Coverage Duration	Key Benefits
Term Life	$250,000	$20-$30	10 years	Provides financial support to beneficiaries in case of death within the term.  Affordable premiums.
Whole Life	$250,000	$100-$200	Permanent	Offers permanent coverage and builds cash value in addition to the death benefit.
Critical Illness	$100,000	$20-$50	6 critical illnesses	Provides a lump sum payout upon diagnosis of a covered critical illness.  Can help manage treatment costs and lost income.

What are some options for the best life and critical illness insurance?

Determining the best options in Canada is subjective since it depends entirely on your individual needs and circumstances.

Here are some top-rated Canadian insurance providers:

1. Manulife: Known for its strong financial stability and diverse product offerings.
2. Sun Life: Offers a wide range of options with competitive rates.
3. RBC Insurance: Provides comprehensive coverage and excellent customer service.
4. Canada Life: Features innovative products and customizable options.

Factors to consider

• Your age, health, and lifestyle: These significantly impact your eligibility and premium costs.
• Coverage needs: Assess how much coverage (for both types of insurance) you need based on your dependents, debts, and future financial goals.
• Budget: Determine your comfortable monthly or annual premium range.
• Coverage type: Decide between term life (temporary), whole life (permanent), or a combination of both for life insurance. With critical illness, consider the number of illnesses covered and the benefit amount.
• Riders: Explore optional riders like child-term life or disability income that enhance your coverage.

How much life insurance and critical illness coverage do I need?

Just like the cost, determining the exact amount of coverage you need in Canada is subjective. This too depends on several factors specific to your situation.

• Dependents: If you have dependents (spouse, children), their financial needs become your responsibility after your passing. Consider their living expenses, education costs, and any outstanding debts.

• Income: Estimate how much your income contributes to your household, and what impact its loss would have on your dependents.

• Debts: Calculate your existing debts like mortgages, car loans, credit card balances, etc. Life insurance can help ensure these are covered if you're no longer there to pay them.

• Savings and investments: Assess your existing savings and investments that could potentially support your dependents.

• Retirement goals: Consider your desired retirement lifestyle and adjust your coverage needs accordingly.

• Critical illness considerations: For critical illness insurance, factor in potential treatment costs, lost income during recovery, and any lifestyle changes necessitated by the illness.

A common rule of thumb suggests 5-10 times your annual income as life insurance cover. Adjust this based on your dependents, debts, and financial goals.

Similarly, experts recommend critical illness insurance coverage amounting to 2-5 times your annual income to manage potential treatment costs and lost income during recovery.