You’ve probably heard about
critical illness insurance or disability insurance
but what’s the difference between them?
In this video,
I will go over the CI insurance and Di insurance
in Canada so you know which one to pick!
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Critical illness insurance and disability insurance
are two of the most common living benefits
available to Canadians and so it’s useful to do a
comparison between them to see which one is
right for you or if you should get both.
let’s jump right into critical illness insurance first.
Critical illness insurance is an important part
of Canadian’s financial planning.
It is an insurance policy that pays you a
Tax-free lump sum amount if you
develop a specified illness
such as cancer, a stroke, or a heart attack,
plus another 20 diseases or health conditions.
Some might say! I am young and healthy!
Cancer, heart attack and stroke
won’t happen to me.
but the reality is 2/5 of us are expected
to develop cancer in our life time.
And 63% of Canadians are expected to survive
for more than 5 years after a cancer diagnosis.
Therefore, life insurance cannot kick in yet and
disability might not have enough
to cover on going medical treatment.
So we need something in between
to protect the risk.
And Critical illness insurance can give you
the freedom to make the best decisions for
your recovery, for your family, or in some cases,
if the illness is life-threatening,
it can help you capitalize on the
time you have left.
Alright that’s the essence
of critical illness insurance,
but what about disability insurance?
According to statistic Canada,
22% or 1 in 5 of the Canadian aged 15 years
and older have one or more disabilities.
And 1 in 3 Canadians will need to take more
than 90 days off from their work due to disability.
And what’s worse,
the average income for people who are disable
is only half compare to others who are healthy.
And therefore,
Disability insurance is meant to replace a
substantial portion of your income
should you become injured or ill
and you cannot work,
typically around 67 to 85%
depending on your policy.
Generally, the more expensive your policy,
the more percentage of your income it covers.
I get a lot of clients who call me and say
they have critical illness insurance,
do they really need disability insurance
as well and vice versa?
There is actually a big difference between a
critical illness and disability insurance
that you need to know about.
So, let’s dive into more.
First let’s talk about
how the insurance pay out structure.
In Canada,
Critical illness insurances pays out a
lump sum tax free amount to the beneficiary.
So, say the insurance coverage is$100,000.
Knock on wood,
if you have a heart attack.
Then you get a $100,000 tax free cheque.
And the policy will be voided after and
usually it’s harder for you to get a 2nd policy
since you have a pre-existing medical condition.
And unlike critical illness
which provides you with a lump sum,
disability insurance provides you with
consistent monthly payments while
you recover from your disability or
until your pre-determined coverage period ends
– whichever comes earlier.
you can use the benefit on whatever you see fit,
but the monthly payment structure is
meant to mimic your paycheque and is
typically intended to cover your mortgage or rent,
and other living expenses
while you are on the road to recovery.
And after you are recovered,
the plan is still in force and you can still able
to get 2nd claim on the same policy.
Now please note that for CI insurance,
the more that you buy,
the more you get paid when you are sick.
However, DI might not be in the same case.
The goal for DI is to replace 67% of the income.
So say you get into car accident.
The auto insurance will pay first,
then your company’s disability plan will pay next,
then last it’s covered by
your personal disability plan.
That’s called the integrated coverage.
Therefore, it’s very VERY important to talk to
the insurance advisor about
the detail of disability insurance.
Now how long will
both CI and DI going to protect you?
For Critical illness insurance,
usually Insurance company will offer
4 different coverage period.
We have the term 10 and 20.
Which covers for the next 10 years or 20 years.
We have to age 75.
Which coverage to age 75.
And lastly, we have to age 100
which is cover for the entire lives.
Some insurance companies
offer mid-range coverage
like cover for 25 years or coverage to age 65
but that’s just the variation of the 4 general types.
Now stating the obvious, the longer the coverage,
the higher the cost.
But the great thing for critical illness in Canada
is that once you sign up,
insurance company will lock the rate for you.
Therefore,
this price is fixed until the coverage expires.
Now’s let’s take a look on disability insurance.
There are two general types of disability insurance:
short-term and long-term.
Short-term is generally two years or five years
while long-term usually covers until age 65.
Because technically speaking
you are retired at age 65.
How about the cost between the two then?
For Critical Illness insurance,
the cost of the insurance
depends on your age, gender, smoking or not,
any medical history, and your body build.
While Disability Insurance is really keen on
what industry and the income level and
the waiting period which I will share more.
For example,
a trucker driver disability insurance will be
much higher compare to the programmers.
Let’s say Tom is 35 years old,
a self-employed IT consultant.
If he is looking for a
$100,000 Critical Illness Insurance,
then it’s around $40 per month for term 20,
around $80 dollars for age 75.
Let’s say with this 80 dollar budget,
what can Tom gets for disability Insurance.
Tom can get a $4,000 monthly benefit
for 5 years coverage.
Meaning, If tom cannot go to work
due to either sickness or accident.
He will get $4,000 per month for the
next 5 years or doctors said he recover,
whichever is earlier.
Just like buying a car,
you can add in other features to both the
critical illness and the disability insurance.
For instance, for both policies you can add
something called return of premium.
For Ci Insurance, say after at age 75,
if nothing happened to you.
you are entitled to get all the money back.
So it gives you extra boost
to your retirement income.
This is important to business owners,
because we can further spin this idea to
create more tax strategies around that.
Same features apply to disability insurance as well.
usually they return 50%
of what you put in back to you.
and I know for some insurance companies,
you can exercise this option every 7 years so
this is not just a cost in your budget list.
It is a really great option because it really is risk-free.
Either you need the policy and
you get paid the money while you recover
from an illness or injury or
you don’t use the policy and
your premiums are returned to you.
In essence, it ends up being a forced savings account
over the long term with the added benefit of
giving you insurance coverage
during the time of the policy.
There are lots of other features like
inflation adjustment,
partial or full disability coverage or
protect your own job expertise.
But I leave it in the future topics.
So the question becomes
which insurance should you choose?
Or should you double up and get both?
As a general rule,
having both kinds of insurance can be vital
in giving you the best financial protection
layered with a regular life insurance option.
However,
that may not be an option because of cost
or you may not be eligible for disability insurance.
For example,
seniors, and people working in high-risk jobs
like loggers, truck driver, and mining operators
may get denied coverage for disability.
2nd if you work for a government or other companies,
you might have a very good employee package
which usually have a certain amount
of disability insurance.
Also on the other hand,
as the work-from-home culture is
becoming more common,
it’s important to note people who work from home
100% of the time might not qualify
for disability insurance because it’s impossible
for the insurance company to tell
if they are working or chilling at home.
For this reason,
critical illness insurance is generally recommended
for people who can’t get
disability insurance coverage.
However, with that said,
you should generally prioritize disability
over critical illness insurance,
especially if you are self-employed or
don’t have group disability coverage.
Your ability to earn an income is
your most valuable asset,
and should the unexpected happen,
the only way to protect yourself from the
financially devastating outcome is disability insurance.
But please talk to your insurance planner about
your individual situation and what is right for you.
because there is no assurance that you will
experience a medical condition covered
by both types of insurance.
For instance, critical illness insurance will
not provide payments if you are unable to work
because of an injury that can be recovered shortly.
Alternatively,
you could be suffering from a serious illness
that doesn’t keep you from working.
For example, many people diagnosed with
life-threatening cancer might only miss
a couple of months of work for treatment.
In this situation,
they will only receive the critical illness benefit.
Of course, the opposite can also happen.
Major depression can leave you unable to work
which would likely be covered under disability
but not critical illness.
Or if you have a job where you have to stand
and you sprain or break your ankle,
this too would only be covered by disability insurance.
So again, make sure you talk to your insurance planner.
If you are interested in a free consultation
to learn how you can build tax free wealth
without market volatility to protect you
and your family using solutions that
Canadian banks don’t want you to know about,
There is a link below where
You can have a direct one on one chat
with either my team and I.
Hey! Thanks so much for watching
This is Thomas And I will see you in the next video!