Critical Illness Insurance vs Disability Insurance in 2024

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Alexandre Desoutter updated on 30 January 2024

If you're considering how an unexpected illness or accident could impact your ability to work and support your family, it's crucial to explore options like critical illness insurance and disability insurance. These policies can be key to ensuring your family's financial security in such events.

But what's right for you? In this guide, 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?

Before comparing critical illness and disability insurance, it’s helpful to understand how each of them works.

Critical illness insurance

Critical illness insurance provides supplementary healthcare coverage in case of a medical emergency, such as a stroke, cancer diagnosis, organ failure, or heart attack. Treatment costs for these kinds of ailments can easily exceed traditional policy maximums, and a critical illness insurance policy protects you from having to dip into your savings to close the gap.

Disability insurance

Disability insurance protects your income and earning potential in case of an accident that prevents you from working. Many employers offer short-term disability insurance as a standard benefit, though coverage seldom exceeds 90 days. Individuals may opt to purchase long-term disability insurance in Canada for additional protection in case of a serious accident.

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?

On the surface, these two policy types have many similarities - to the point that you may wonder if you need both. Look more closely, and you’ll soon recognize some important differences between critical illness insurance and disability insurance, particularly when it comes to payout types and timing. Below we take a look at critical illness insurance vs disability insurance

FeatureCritical Illness InsuranceDisability Insurance
Covers any additional medical costs associated with severe illnesses, such as cancer, stroke, or a heart attackReplaces monthly income during periods when you cannot work due to a qualifying accident or injury
Payout Type
One-time lump sumMonthly
Claim Eligibility
Upon diagnosis of a covered medical conditionUpon diagnosis of a covered medical condition
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
Usage of payment
Payments can be used to cover a range of needs, including:
  • 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
Payments can be used to cover day-to-day living expenses, including basic healthcare
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

Aside from the differences in payment structures, it’s important to understand that these two insurance types exist to meet distinct needs.

  • Critical illness benefits are intended to cover one-time costs associated with a serious or life-altering medical event that temporarily prevents you from working and leads to unexpected expenses.

When considering whether to purchase critical illness insurance vs disability insurance, keep in mind that a comprehensive financial plan may include both. Let’s look at an example.

Mike works as an engineer in an oil refinery in Alberta, where he regularly interacts with heavy machinery and hazardous, highly flammable materials. His wife, Emma, recently gave birth to a baby girl and they have a three-year-old son.

Due to the inherently risky nature of his work, Mike carries long-term disability insurance. If he suffers a serious injury due to an equipment malfunction or chemical accident, he will receive monthly benefits that ensure his family does not face economic hardship while he recovers.

Mike also carries critical illness insurance so that, should he develop cancer or suffer a heart attack, both of which run in his family, he will not have to work while recovering or forgo recommended treatments due to costs.

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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Who should buy critical illness insurance?

No one likes to think about the possibility of a serious illness, and you may never experience a life-altering medical event. To answer the question, “Do I need critical illness insurance?” consider the following:

  • Will you still be able to meet your financial obligations if you suddenly need to pay for intensive medical care?
  • Are you able to afford the loss of income and significant costs that often come with a serious illness?

For many people, insurance provides valuable peace of mind. Knowing that you or your loved ones are protected in case of a sudden illness can be a comfort, freeing you to focus on healing.

Purchasing critical illness coverage also ensures that you have the freedom to pursue the medical care recommended by your doctors without worrying about costs.

Good to know

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

Who should buy disability insurance?

You might assume that only someone working in a high-risk profession would need disability insurance due to the increased chance of a major accident. While it’s true that those working dangerous jobs or in hazardous environments can benefit from this additional coverage, other individuals in need of employee disability insurance include:

  • Sole providers. Single-income households are particularly vulnerable to economic shock if the sole breadwinner suddenly stops working. Employment insurance disability benefits protect your family from a sudden loss of income while you recuperate.
  • Parents. Similar to sole providers, parents can protect their children from additional stress in the case of an accident by purchasing disability insurance to supplement any government Employment Insurance (EI) benefits.
  • People with recurring injuries. Workers who struggle with persistent injuries, such as back pain or migraines, can purchase disability insurance to protect their income and quality of life during periods when rehabilitation or chronic pain makes working difficult or impossible.

How do I get critical illness insurance?

You can 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.

You can get free quotes from the best critical illness insurance providers in Canada right now using our free tool below.

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How much does critical illness coverage cost?

The price you pay and your monthly premiums for critical illness insurance will vary based on the type of policy you purchase and your overall level of personal health.

Typical monthly premiums for someone under the age of 25 start as low as $10, while someone over the age of 60 might expect to pay at least $50 per month.

How do I get disability insurance?

Similar to critical illness insurance, you can do your research and buy disability insurance directly from the insurer online.

Given the complexity of the employment insurance disability benefit scheme in Canada, however, you may feel more comfortable speaking with a broker or financial advisor. These professionals will work with you to find the best policies, premiums, and prices for your budget and needs.

How much does disability insurance coverage cost?

The monthly premium you pay for Canadian disability insurance varies depending on a number of factors, including your age, overall level of health and income level.

In general, disability insurance rates will range between 1% and 3% of your monthly salary, though some plans may charge up to 9%. In the event that you need to claim disability insurance benefits, expect to receive monthly payments equivalent to between 60% and 70% of your income.

Marie makes $60,000 per year as an office manager and would like to purchase long-term disability insurance to “top up” her Canadian Employment Insurance disability benefits. Marie can expect to pay between $50 and $150 per month in premiums. Should she ever need to claim benefits, her insurer will likely pay between $3,000 and $3,500 each month for the term allowed under her policy.

You can get free quotes from the best disability insurance providers in Canada right now using our free tool below.

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Is critical illness insurance taxable?

In Canada, critical illness insurance payouts 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.

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.

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Alexandre Desoutter

Alexandre Desoutter has been working as editor-in-chief and head of press relations at HelloSafe since June 2020. A graduate of Sciences Po Grenoble, he worked as a journalist for several years in French media, and continues to collaborate as a as a contributor to several publications.