How insurance helps with illness or disability

Preserving your income while you recover or adjust

If you became critically ill or had a very serious injury, there’s a good chance that you’d be able to recover and return to as normal a life as possible – thanks to the wonders of modern medicine. But without the right type of protection, your family's finances may not be so fortunate. Here's what you need to think about.

According to insurance industry data, one in four Canadians will suffer a critical illness by the age of 65. Your chances of being disabled for at least 90 days are one in three – that’s eight times more than the possibility of dying early.

Although most people have some form of life insurance, many have no plans for protecting their income while recovering from a major illness. Here are two ways to help protect your income – and your family's lifestyle.

Disability insurance to replace income

Many working people are covered by their employer's group disability insurance. If this is the case for you, take the time to find out exactly what medical conditions your plan does and doesn't cover. Some plans may not cover or provide only limited benefits for mental health illnesses, such as depression, stress, and anxiety.

Even if you're covered by a group plan at work, you can't assume it's adequate to meet your needs. Benefits might run for just two years and be capped well below your income level, which probably won't allow you to maintain savings. Coverage usually ends at age 65 or when you leave your job. You may wish to consider topping up your employee benefits, if you don't feel they're sufficient.

If you're self-employed, disability insurance is even more critical because you have no employee benefits to fall back on. You’re truly on your own.

Critical illness insurance funds your recovery

While disability insurance is tied to your ability to work, critical illness insurance is not. You can be eligible for critical illness coverage even if you don't work or don't have an income – two stipulations required for most disability insurance programs. For employed people, if you return to work after a diagnosis and aren't eligible for disability benefits, you can still be entitled to a critical illness insurance lump sum. In many cases, you can receive both.

Critical illness insurance provides a lump sum of tax-free money 30 days after diagnosis of any one of the major illnesses listed in the policy, such as heart attack, stroke, or life-threatening cancer. The money can be used for whatever you choose – from an alternative form of treatment not covered by your medical plan, to private nursing care, to paying off your mortgage, to taking a longed-for vacation.

Here's a brief comparison of these two types of insurance and how they can complement each other:

	Disability	Critical Illness
Trigger	Inability to work	Diagnosis of condition covered by policy
Waiting period	Generally between 30 and 180 days; the longer the waiting period, the lower the premium	30 days
Benefits	A preset percentage of income usually paid for a limited time	A lump sum from $10,000 to $2 million
Taxation	Taxable to employees if they are funded by their employers; tax-free if self-funded	Benefits are tax-free
Coverage period	Usually to age 65	Up to age 100
Strategy/usage	Monthly income replacement; the younger you are, the greater your likelihood of needing it at some point	At your discretion: reduce financial burdens, pay for extra medical care, etc.

Other considerations

Whether supplementing an employer-provided package or purchasing a plan to protect your entrepreneurial spirit, there are a few other things to think about when it comes to critical illness and disability insurance.

Think about adding disability and critical illness coverage to your mortgage insurance.^***
Check with your employer about your company’s policy on issues like sick days and leaves of absence.
Determine if you have any supplemental health insurance benefits, either through work or privately.
If you don't have a rainy day fund, talk to your advisor about the possibility of dipping into your RRSP or tapping into your home equity.
Investigate if you qualify for Employment Insurance Sickness benefits.
Determine if you qualify for monthly Canada Pension Plan Disability benefits.

With professional advice, you can design a comprehensive package to provide income, cover extra costs, and still allow your family to build toward important savings goals.