What Is The Difference Between Critical Illness Insurance and Disability Insurance?
Some people prioritize insuring their health and valuable assets, such as homes and cars over retaining their financial stability in the future. However, life is unpredictable, and everything from catastrophic injuries to serious illnesses may occur, leaving you unable to work. While health insurance can cover hospital bills, it cannot cover everything, and there may still be out-of-pocket expenses, not to mention your other payments ranging from mortgages to daily necessities. That is why it is vital to protect your income during a catastrophe.
Critical illness and disability insurance are specifically designed to assist you in financially overcoming the most challenging times in your life. Though both insurance types give you benefits while you cannot work, they function differently. Look ahead to learn about the scope of coverage and the main differences between critical illness and disability insurance.
Critical Illness Insurance
Critical illness insurance covers serious illnesses and long-term conditions that may vary by insurer. The most comprehensive policies may cover over 50 illnesses; however, heart attacks, organ transplants, multiple sclerosis, Parkinson's disease, stroke, and traumatic injuries are the most common.
Critical illness insurance will provide financial benefits if you are diagnosed with one of the severe illnesses covered by the policy. It is a tax-free lump sum payment that you can use for treatment, rent, debt repayment, or anything else you require at the time.
Disability Income Insurance
Disability insurance pays you a regular weekly or monthly benefit if you cannot work due to a disability (sickness or injury).
Disability refers to a long-term physical or mental impairment preventing them from conducting everyday activities.
You will continue to get payments until you get back to work. Though the disability benefit won’t replace your exact paycheck, it will help you address your daily expenses. The funds won’t be available immediately after becoming disabled, as you should meet the elimination period.
Disability insurance can be both short-term and long-term. Although short-term coverage (often ranging from 12 months to two years) is inexpensive and straightforward, it is not as comprehensive as a long-term policy. The latter, while more expensive, may cover you up until retirement.
Remember, disability income insurance does not cover stress, back problems, or illnesses you may have when purchasing the policy.
Critical Illness VS Disability Income Insurance: Key Takeaways
When the worst happens, disability Income and critical illness insurance can provide financial relief in various ways.
In a nutshell, here are the main differences between these policies:
- You won't have to prove your inability to work once you've been diagnosed with a covered illness under a critical illness policy. On the other hand, disability income insurance requires ongoing proof of disability, and payments will stop once you are no longer disabled.
- After being diagnosed with one of the serious illnesses listed in your policy, your critical illness policy will provide you with a one-time payment. Disability insurance will pay you monthly benefits if you cannot work for an extended period.
- Disability income insurance benefits are based on your pre-disability paycheck amount and may pay you up to 70% of your income, whereas critical illness payout is defined in your contract.
- Critical illness payouts are made after 30 days, whereas disability income may provide you with benefits once the elimination period is met. You can select a period of elimination ranging from 30 to 120 days: the shorter the elimination period, the more expensive the policy.
It’s impossible to say which of these two policies is better, as disability insurance can help you with day-to-day expenses, whereas critical illness can provide you with the needed funds for treatment.
If you are diagnosed with a critical illness and have only disability insurance, you may still be able to work and, thus, be ineligible for disability insurance benefits and can’t focus on your recovery. Thus, they are equally crucial for developing a secure financial plan.