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Money Advisor Wealth Management

Money Advisor Wealth Management

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Disability Insurance

Critical Illness vs. Long Term Disability

 While most of us recognize the benefits of Life Insurance, the truth is that insurance against an accident or disease is arguably even more important. Statistically, a typical 30 year old has 4 times greater chance of becoming disabled or critically ill than he does of dying before age 65. A full one in six Canadians will be disabled for 3 months or more before the age of 50.

It makes sense then that insurers should underscore the importance of Disability and Critical Insurance to their brokers. LTD benefits are a monthly percentage of a person’s income, and have a waiting period from the onset of disability before regular payments can be made. Critical Illness, on the other hand, also has a waiting period, usually shorter, but is not based on a percentage of the holders’ income, but the full amount of the policy. It is therefore a good alternative due to the confines of Long Term Disability. There are also many reasons why LTD may not be an option for some, such as ineligibility due to family history, occupation, industry or having no earned income.

This is where Critical Illness comes in as a bridge between Life and LTD. It is paid out as a one-time tax free lump sum payment to the insured within 30, 90 or 180 days of diagnosis of illness. There are no strings attached. The funds can be used for everything from paying off a mortgage, paying ongoing medical expenses not covered by the provincial/territorial plans, or even a vacation!

In general, Critical Illness should be considered a compliment rather than a substitute for Disability Insurance. However, because CI is easier and less expensive to obtain (for single coverage) it is recommended for those who may not qualify for LTD due to the reasons discussed above. Additionally, since disability benefits may be affected by the holders other sources of income or full recovery from the debilitating illness, CI is a good option for those who are looking for a predictable payout in case of illness or disability. LTD also requires ongoing proof of loss of income, while CI does not. On the flip side, however, CI coverage is limited to the illnesses or disabilities included in the plan. Comprehensive plans cover up to 25 illnesses, and most basic CI plans have about 5 illnesses.

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