Disability Insurance vs. Critical Illness Insurance

Disability Insurance vs. Critical Illness Insurance
National Bank Personal, Plan Personal, Plan

Homebuyers looking to cover their mortgage in the event of an unexpected life event tend to turn their noses up at mortgage critical illness insurance. And yet, according to Michel Savard, Insurance Business Development Manager at National Bank, homeowners have a vested interest in checking out this mortgage safety net, which is tailored to an aging population with a growing vulnerability to certain common ailments.

Why should homeowners take out critical illness insurance for their mortgage?

People are much more likely to contract a critical illness than they are to die while they are still paying off their mortgage. So statistically speaking, it makes sense to consider an insurance product designed to mitigate the fact that more of us are surviving critical, and even terminal, illnesses.

Critical illness insurance, which first appeared in the early 1980s in South Africa, was actually the brainchild of a doctor. Marius Barnard, brother of the surgeon who performed the first human heart transplant in 1967, observed that more patients were recovering from illnesses previously considered terminal but that they often emerged with financial scars. He pushed insurance companies to offer coverage as a flat sum to be paid to cover certain costs incurred as a result of a critical illness.

Does critical illness insurance cover all types of illnesses?

The mortgage critical illness insurance offered by financial institutions usually covers Canada’s three most frequently diagnosed critical illnesses, i.e., heart attack, stroke, and most life-threatening later-stage cancers (e.g., not Stage A). As a result, sometimes clients get lost in the complexities and medical jargon of their insurance policy and may have to ask their doctor to read it to determine if their condition is covered.

How is critical illness insurance different from disability insurance?

This is a frequently asked question, and for good reason. In fact they are two different products that, while complementary, are designed to meet different needs. The purpose of disability insurance is to replace a portion of insureds’ income while they are unable to work, while critical illness insurance pays them a flat sum of money when they need it most.

So critical illness insurance allows insureds to take time to recover without taking on more debt?

Exactly. Last year National Bank Insurance paid out $20 million in benefits to its critical illness insurance policyholders, keeping them from having to tap into their savings while they are unable to work for one or more years. Patients with inadequate coverage often have to suck their RRSPs dry just to meet their day-to-day needs and hold on to their homes while they recover. Obviously this can take a huge toll on their quality of life at retirement.

In addition to covering patients’ day-to-day financial obligations, like their mortgage, groceries, and childcare expenses, critical illness insurance may also pay an average of $32,000 a year during treatment and convalescence.  

But why are these illnesses so expensive when Quebec has a public health insurance plan?

Since we have a public healthcare system in Quebec, we tend to assume that falling critically ill costs nothing. But cancer patients, for example, often have to travel long distances to receive treatment, resulting in transportation, lodging, and meal costs for them and their friends and family.  Plus, certain medications that alleviate the side effects of chemotherapy are not covered by the public plan and certain cancer treatment options are not covered by health insurance. The costs associated with a critical illness can therefore be significant.

*“Les coûts économiques du cancer au Québec en 2013” study, Coalition Priorité Cancer du Québec

Sources: Canadian Cancer Society, Heart and Stroke Foundation of Canada, National Bank Insurance

Edited on 15 August 2017

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