Critical illness vs. disability insurance: Which one do you need?

You work hard to support your family, build your future, and live the life you’ve planned. But what would happen if your health took a turn – unexpectedly?

While most people understand the need for life insurance, far fewer think about what would happen if they became seriously ill or injured but survived. That’s where critical illness insurance and disability insurance come in.

Both are designed to protect your income when health issues arise, but they work in very different ways.

Let’s break it down.

What is disability insurance?

Disability insurance replaces a portion of your income if you're unable to work due to illness or injury. Think of it as a financial safety net for your paycheque.

You may already have some disability coverage through your employer. But group plans can be limited in both amount and duration. If you're self-employed, a professional, or a business owner, it's worth reviewing how much income you could actually count on if you had to stop working, even for a few months.

How it works

If you develop a condition like chronic back pain, depression, or multiple sclerosis – and can’t work – disability insurance pays you a monthly benefit. This income replacement helps cover your everyday expenses, so you can focus on recovery instead of worrying about money.

What is critical illness insurance?

Critical illness insurance pays a one-time, tax-free lump sum if you're diagnosed with a covered serious illness. This includes things like cancer, heart attack, stroke, and other life-changing conditions.

Unlike disability insurance, this money doesn’t replace your income month-to-month. Instead, it gives you a large amount of cash up front to use however you need. The amount of the payout depends on how much coverage you want or need, based on your income and financial responsibilities. However, it’s a good idea to get coverage that would cover at least six months of income.

How it works

You’re diagnosed with breast cancer and need time off for treatment. Critical illness insurance pays out a lump sum – often between $25,000 and $100,000 or more depending on your policy. You can use it to pay for private nursing, travel to a specialist, cover your mortgage, or even take a stress-free family vacation once you’ve recovered.

What’s the difference?

Which one do you need?

The answer? Maybe both.

Disability insurance is essential if you rely on your income to support your household (and let’s face it – most of us do). It’s designed to carry you through a longer-term health challenge by helping with your day-to-day bills.

Critical illness insurance fills a different need: the sudden cost of getting sick. Even with disability benefits or government coverage, a serious illness often brings unexpected, out-of-pocket costs – for things like private care, medications, or time off for your spouse to help support you.

A real-life example

Brandon, a 42-year-old dentist, was diagnosed with lymphoma. He needed to step away from his practice for 6 months.

• His critical illness policy helped him cover home care, a temporary associate for his clinic, and gave him the flexibility to rest without financial stress.
• His disability insurance provided monthly income to keep his mortgage and other bills paid while he recovered.
   

Together, the two types of coverage gave him full support.

Why this matters

We insure our homes and our cars, but our ability to earn an income is often the most valuable asset we have.

Yet many Canadians don’t have the protection in place to support them through a health setback. According to data from the Canadian Life and Health Insurance Association:

• Fewer than 1 in 3 Canadians have disability insurance¹
• Less than 6% have critical illness coverage¹
   

That means most people are still missing an important layer of protection. Not because they don’t care, but because they haven’t had the chance to explore their options or get clear on what fits their life.

The good news? You don’t need to figure it out alone. With the right strategy in place, you can feel confident knowing you’re covered, so your focus can stay where it matters most: your recovery, your family, and your future.

How we can help

We believe protection should grow with your life. Whether you're a young professional, a growing family, or a business owner, our job is to help you make smart, informed choices about risk.

Here’s how we support you:

• We start by understanding what coverage you already have (if any).
• We walk you through the differences between products, using simple language and real examples.
• We recommend only what fits your needs and goals, with no pressure, and no hard sell.
• We help you choose the right mix of coverage, so you feel confident no matter what life brings.
   

And if you’re already working with a financial planner, accountant or lawyer, we’re happy to partner with them to make sure your full plan is aligned.

The bottom line

Disability insurance and critical illness insurance are both powerful tools. Used together, they can help protect your income, reduce stress, and give you the flexibility to heal and move forward – on your terms.

Want to know if your current coverage is enough?

Let’s walk through it together. Because protection isn’t one-size-fits-all. And your plan shouldn’t be either.

Sources

Critical illness and disability insurance in Canada. September 29, 2023. MoneySense. https://www.moneysense.ca/save/critical-illness-and-disability-insurance-in-canada/.