What is the difference between life and critical illness insurance?
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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.
Life and Critical Illness Insurance: 5 Key Takeaways
- Life insurance covers expenses like funeral costs and debts.
- Critical illness insurance supports you during your illness.
- Mortgage life and critical illness insurance combine both of them.
- The cost varies based on factors like age, health, coverage amount, and more.
- Your coverage needs and budget are crucial in determining the most suitable option.
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.
Compare critical insurance plans today
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 |
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| Purpose |
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| Benefits |
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| Considerations |
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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.
Expert advice
Not all lenders offer MLCI, and the coverage limits may not be enough for your entire mortgage. Also, premiums increase as you age.
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.
Compare the best life insurance companies
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 |
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| Whole Life | $250,000 | $100-$200 | Permanent |
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| Critical Illness | $100,000 | $20-$50 | 6 critical illnesses |
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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:
- Manulife: Known for its strong financial stability and diverse product offerings.
- Sun Life: Offers a wide range of options with competitive rates.
- RBC Insurance: Provides comprehensive coverage and excellent customer service.
- Canada Life: Features innovative products and customizable options.
Good to know
TD life and critical illness insurance — another good option!
It is a suite of products offered by TD Insurance in Canada. It offers various combinations of term life, whole life, and critical illness coverage under different policy names, each with its features and benefits.
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.
