Living with illness or disability
Preserve your income while you recover.
Thanks to medical advances, your chances of recovering from a critical illness are excellent. 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 the insurance industry, one in four Canadians will suffer a critical illness by age 65. Chances of being disabled for at least 90 days are one in three; eight times more than the possibility of dying. 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.
Fortunately, most people who work 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.
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, don't have an income, and therefore aren't entitled to disability insurance. And 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 our medical insurance, 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 things to consider.
- Think about adding disability and critical illness coverage to your mortgage insurance.
- Check with your employer about company policy on issues like sick days and leave 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.