Critical Illness Insurance vs Disability Insurance: What to Choose?

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Nishadh Mohammed updated on 5 January 2025

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Critical Illness Insurance provides a lump-sum payout for specific illnesses like cancer or heart disease, while Disability Insurance replaces your income if you’re unable to work due to illness or injury. Both offer financial protection, but the choice depends on your needs and lifestyle.

So, what's right for you? In this guide on Critical Illness Insurance vs Disability Insurance, we'll clearly explain how these two types of insurance compare, including their benefits and differences, to help you make an informed decision about protecting yourself and your loved ones.

You can also use our free comparator to explore the best critical illness insurance and disability insurance plans in Canada, compare their coverage, and get free quotes right here.

Critical illness vs disability insurance: Key takeaways

  1. Critical illness insurance covers one-time medical costs.
  2. Disability insurance replaces monthly income.
  3. Critical illness payouts are a tax-free lump sum.
  4. Disability benefits are tax-free, and replace 60-70% of income.
  5. Neither insurance type has tax-deductible premiums.

What are critical illness insurance and disability insurance?

Critical illness insurance

Critical illness insurance provides a lump-sum payout if you’re diagnosed with a covered serious illness, such as cancer, heart attack, or stroke. The payment can be used for medical bills, recovery costs, or even everyday expenses.

Disability insurance

Disability insurance replaces a portion of your monthly income if you’re unable to work due to illness or injury. It helps cover regular expenses like rent, groceries, or childcare while you recover.

If you think disability insurance could be right for you, you can use our free comparator below to explore the best plans in Canada and get personalized quotes right here.

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Critical illness insurance vs disability insurance: What are key differences?

FeatureCritical Illness InsuranceDisability Insurance
Purpose
Provides a lump-sum payment upon diagnosis of a covered illnessReplaces a portion of your income if you’re unable to work due to illness or injury
Payout Type
One-time lump sumMonthly
Covered Conditions
Many policies will cover costs relating to:
  • Stroke
  • Organ transplants
  • Cancer
  • Coronary bypass
  • Renal failure
  • Paralysis
  • Loss of limb
  • Heart attack
Many policies will cover costs relating to:
  • ALS
  • Hearing and vision loss
  • Mental health, including PTSD, bipolar disorder and depression
  • MS
  • Seizures
  • Back and head injuries
Cost
Generally lower premiums.Higher premiums due to broader coverage and longer payout periods.
Claim Eligibility
Upon diagnosis of a covered medical conditionUpon diagnosis of a covered medical condition
Usage of payment
  • Treatments and specialists not covered by a traditional policy
  • Critical medical services
  • Daily living expenses
  • Mental health services
  • Mortgage payments
  • Home improvements and major purchases to improve accessibility and mobility during recovery and rehab
Intended for living expenses like rent, bills, basic healthcare, and groceries
Taxable Payments
Payouts are tax-freePayouts are tax-free
Tax Deductible Premiums
Waiting Period
No. Payouts are generally made shortly after claims are filed.Yes. Many plans include a waiting period of 30 to 90 days before benefits are paid.
Length of Coverage
LifetimeEnds at 65
Payment Cap
None. Comprehensive coverage can range from $150,000 to $3 million for an adult.Many plans cap monthly payments at $5,000
Disability insurance vs critical illness insurance: the important differences

How much does critical illness insurance cost?

Critical illness insurance costs depend on various factors, but it is generally more affordable than disability insurance due to its one-time lump-sum payout.

Factors Influencing Critical Illness Insurance Costs

  1. Age: Younger individuals pay lower premiums.
  2. Health: Pre-existing conditions or poor health can increase costs.
  3. Coverage Amount: Higher payouts (e.g., $100,000 vs. $50,000) result in higher premiums.
  4. Policy Term: Shorter terms (e.g., 10 years) are cheaper than lifetime coverage.
  5. Smoking Status: Smokers pay significantly more than non-smokers.

Critical Illness Insurance Cost

AgeNon-Smoker Premium (Monthly)Smoker Premium (Monthly)Coverage Amount
30 years
$25 - $50$50 - $100$50,000
40 years
$50 - $75$100 - $150$50,000
50 years
$75 - $150$150 - $300$50,000
50 years
$150 - $300$300 - $600$100,000
Critical Illness Insurance Cost Canada

How do I get critical illness insurance?

You can use our free tool below to compare the best critical illness insurance plans in Canada and get free personalized quotes online. It's quick and gives you the best rates.

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You can also purchase critical illness insurance directly from an insurer online or, if you already carry life or permanent disability insurance, through your current insurance provider.

If you plan to purchase critical illness insurance as part of a comprehensive financial plan, it may be wise to work with a broker or other adviser. Financial planning professionals can help guide you to the best products for your budget and goals, and they may be able to negotiate on your behalf.

Is critical illness insurance taxable?

Critical illness insurance payouts in Canada are tax-free, meaning you receive the full lump sum without tax deductions. However, the premiums you pay for this insurance are not tax-deductible, as they're considered personal expenses by the Canada Revenue Agency. This impacts both the cost of maintaining the insurance and the net financial benefit you gain from it. Understanding this distinction is vital for effective financial planning.

How much does disability insurance coverage cost?

Disability insurance costs are higher than critical illness insurance because it offers ongoing income replacement for the duration of a disability. In general, disability insurance rates will range between 1% and 3% of your monthly salary, though some plans may charge up to 9%.

Factors Influencing Disability Insurance Costs

  1. Income Level: Premiums are calculated as a percentage of annual income (1-3%).
  2. Occupation: High-risk jobs (e.g., construction) have higher premiums than low-risk jobs (e.g., office work).
  3. Age: Younger individuals pay less; premiums increase with age.
  4. Waiting Period: Policies with longer waiting periods (e.g., 90 days) are cheaper.
  5. Benefit Period: Shorter benefit periods (e.g., 2 years) reduce costs compared to coverage until age 65.

Disability Insurance Cost

Annual IncomePremium (% of Income)Monthly Premium (Range)Coverage (60% of Income)
$40,000
1% - 3%$33 - $100$2,000/month
$60,000
1% - 3%$50 - $150$3,000/month
$80,000
1% - 3%$67 - $200$4,000/month
$100,000
1% - 3%$83 - $250$5,000/month
Disability insurance cost

How do I get disability insurance?

You can use our free tool below to compare the best disability insurance plans in Canada and get free personalized quotes online. It's quick and gives you the best rates.

Get a free disability insurance quote

Compare insurance quotes now

Is disability insurance taxable?

In Canada, the benefits you receive from disability insurance are not taxed, so the full amount of your monthly payments remains with you. However, similar to critical illness insurance, the premiums you pay for disability insurance are not tax-deductible. This means they cannot be used to reduce your taxable income. Understanding this can help you manage your finances and expectations regarding the actual cost and benefits of your disability insurance policy.

Who should buy critical illness insurance?

Critical illness insurance is designed for those who want financial support for medical and recovery-related expenses after being diagnosed with a serious illness. It provides a lump-sum payment that can be used for treatment, lifestyle changes, or even to take time off work. This coverage is ideal if you’re concerned about the financial burden of a major illness.

Critical Illness Insurance is ideal for:

  • Individuals Without Savings: If you don’t have an emergency fund, a lump-sum payout can cover unexpected medical costs.
  • Self-Employed Workers: Since you might not have access to paid sick leave, this insurance helps bridge financial gaps.
  • Family Caregivers: If your illness could impact your ability to care for others, this coverage provides financial relief.
  • People with a Family History of Illness: If conditions like cancer or heart disease run in your family, this insurance can prepare you for the unexpected.
  • Anyone Wanting Peace of Mind: Knowing you’ll have financial support during a health crisis can reduce stress and allow you to focus on recovery.

Expert advice

Use our critical illness insurance calculator to how much coverage you need and to find the best policy for you.

If you think critical illness insurance suits you better, use our free comparator below to explore plans and get free quotes right now.

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Get quotes in just seconds

Who should buy disability insurance?

Disability insurance is essential for anyone who relies on their income to support themselves or their family. It provides steady income replacement if you’re unable to work due to illness or injury, ensuring your financial stability during recovery. This coverage is particularly important for those with limited savings or dependents relying on their income.

Disability Insurance is ideal for:

  • Employees Without Workplace Benefits: If your job doesn’t offer disability coverage, having your own policy is critical.
  • Self-Employed Workers: Freelancers, contractors, and business owners who don’t have group benefits need this safety net. If you're self-employed, check out our guide on the best self-employed disability insurance plans and get free quotes and the best rates.
  • High-Income Earners: Professionals like doctors or executives should protect their significant income with tailored policies.
  • High-Risk Occupations: Tradespeople or workers in physically demanding jobs are more likely to experience injuries.
  • Anyone with Dependents: If your family relies on your income, disability insurance ensures they’re cared for during your downtime.

Good to know

Some plans like iA disability insurance offer up to $15,000 benefits per month to replace your income.

If you think disability insurance suits you better, use our free comparator below to explore plans and get free quotes right now.

Get a free disability insurance quote

Compare insurance quotes now
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Nishadh Mohammed
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Nishadh Mohammed is a seasoned news editor and financial writer, working with HelloSafe since May 2023. Nishadh has developed expertise in financial markets, insurance, and investment products, with a deep understanding of the Canadian financial landscape. He has honed his SEO skills and content marketing strategies while writing for Canadian publishing houses. Armed with a master's in Business Analytics and extensive journalistic experience, Nishadh uniquely combines data proficiency and thorough research to deliver comprehensive and accessible information.

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