I really didn’t understand the difference between these two different types of insurance policies, but luckily I have smart friends who answer my dumb question like, “What is the difference between Critical Illness Insurance and Disability Insurance?”.
Chantal Marr answered my query (she is part of LSM insurance one of my advertisers, and she is also my insurance consultant for this blog as well), and I think I now understand the big difference between these two policies.
Chantal’s answer is concise and easily understood:
Disability Insurance pays out a monthly benefit that is tied to your ability to earn an income. Critical Illness pays out a lump sum benefit but is is not tied to your ability to earn an income. Disability Insurance underwrites your occupation and Critical Illness does not.
Chantal has also written a more detailed description and discussion of these insurance vehicles with: Critical Illness insurance vs. Disability Insurance Why You Need Both.
I do not agree that you need both insurances, I think Critical Illness insurance strikes me as a bit ghoulish, in that you get a big pay out for getting a critical illness. Do you need a large lump sum payment if you are diagnosed with a critical illness? I am not sure, I would have thought that if you have a good health insurance plan, and you have some kind of disability insurance, that would be nearly enough, but I am sure Insurance folks would argue you need the critical illness to be completely covered (again, I don’t agree with that).
As for the Disability Insurance, read over your policy carefully if you are purchasing one to ensure you understand how “Disabled” is defined, and how you qualify (or don’t qualify) for funds (but you should do that with all Insurance policies). Understanding what Disabled means, is the key to the policy, as what you think of as disabled and what your insurer thinks of as disabled may not be the same thing.
The other part of any Disability Insurance Policy is figure out who is insuring you. I have written previously about Self Insured Disability Insurance that decimated many families during the Nortel fiasco. Make sure that whoever is insuring you, is financially sound.