DAILY FINANCIAL TIPS – DAY 44 – THE DIFFERENCE BETWEEN DISABILITY AND CRITICAL ILLNESS INSURANCE

There is much confusion between the differences in Disability Insurance and Critical Illness insurance. Part of the confusion arises because there are some overlaps in coverage. People should also not confuse choosing one over the other. They are not exclusive of each other, but complementary plans designed to provide different support for different circumstances and should be the foundation for any financial plan.
In simple terms, think of Disability Insurance as income replacement and Critical Illness Insurance as sickness protection. What triggers a Disability claim/payment is the inability to work – whether that’s due to accident, sickness or injury. If you can’t work (has to be verified/confirmed medically by a doctor) for whatever reason, then Disability Insurance will pay a monthly income stream. Critical Illness Insurance provides a lump sum payment in the event of a major health event (ie such as cancer, heart attack, stoke, etc – most policies cover up to 25 major illnesses). Critical Illness payments are intended to provide financial support to families during time of illness and post illness recovery and offset medical expenses not covered by government insurance plans and income loss.
The overlap occurs if a disability is due to a major illness. For example, someone who has both Disability Insurance and Critical Illness Insurance and is diagnosed with cancer and undergoes radiation and chemo, will receive both a Critical Illness payment and Disability insurance for the period of time they are off work. On the other hand, if you break a leg/ankle and can’t work for months, or are injured in a car accident, Critical Illness will not payout, but Disability Insurance will pay monthly income payments for the period of time one cannot work.
Many company benefit plans may include a component of Disability Insurance, however every disability plan has different wait periods and pay out periods and maximum payment amounts. It is very important to understand what those limits are and are they sufficient to cover your monthly living expenses. If not, then work coverages can be supplemented with personal plans. DO NOT ASSUME work coverage is sufficient. Work Disability Insurance is NOT Critical Illness insurance.
To put a proper income and health protection plan in place, discuss options with a licensed insurance advisor. These are living benefits that should form the foundation for any financial plan. There are many ways to construct disability and critical illness insurance plans to suit most budgets.
These daily financial tips are designed to be short ideas covering different aspects of family and business finances. They are short pieces intended to provide information to enable individuals, families and businesses to make informed financial decisions. Not all tips will apply to every situation, but over the course of a year, most financial topics will be covered. Check in regularly and share with friends and associates.