What You Need to Know: Life, Disability, and Critical Illness Insurance

Today’s world is fast-paced and uncertain, with various global factors contributing to random spikes in costs, financial ambiguity, and economic insecurity worldwide. As a young Canadian earning their own income and potentially with dependents to provide for, planning for one’s financial future is more critical than ever. While it is important for many Canadians to have insurance coverage, it can be difficult to discern which life insurance they most need and what each type of life insurance may offer.

In this article, we’ll go over the basics of life insurance, disability insurance, and critical illness insurance, and how each different type of coverage may be more of less beneficial in safeguarding your financial future and the future(s) of your loved ones.

What is life insurance?

Life insurance is an insurance agreement that exists between the policyholder (you) and an insurer (the insurance company) where you are promised financial benefits, in the form of a death benefit, to your beneficiaries in the event of your death. This agreement stands true so long as you don’t invalidate your policy by going against the terms of your agreement or you cease making payments, cancelling your coverage altogether. In Canada, the bulk of life policies are designed to pay what is known as a “lump sump benefit” to named beneficiaries. This money may then be used to fund certain expenses, including outstanding debts, funeral expenses, an ongoing mortgage, and even just expenses to maintain your beneficiaries’ standard of living.

In Canada, there are two main types of life insurance policies that are available: permanent life insurance, which is more expensive and offers lifelong coverage, and term life insurance, which offers coverage for a specific period of time and is less expensive.

What you choose is mostly up to your needs, financial goals, and your lifestyle. An Excalibur insurance broker may be able to help you fill in the blanks.

How much does life insurance cost?

Life insurance is relatively inexpensive, but its rates can go up the later in life you buy it. In addition, most permanent life policies are more expensive than their term life variations. Term life insurance tends to be the most popular choice for 20 to 30-year terms and generally costs about $25/month.

What is disability insurance?

Disability insurance is similar to life insurance, but it’s an insurance agreement that offers its financial benefits to you in the event you should be unable to work as a result of a disability. Disability insurance can help individuals who have been temporarily or permanently disabled as the financial benefits they receive allows them to maintain their standard of living pre-disability.

Disability insurance can be provided by your employer at your place of work, but it may also be purchased separately (particularly if you’re self-employed or if your employer does not offer this benefit/offers insufficient protection.) Two forms of disability insurance are available: short and long-term. Short-term offers benefits for a specific period of time, usually a few months, and long-term can offer benefits for several years.

How much does disability insurance cost?

The cost of disability insurance varies for the most part, costing more or less depending on the type of policy you purchase, the coverage amount, your existing occupation, your health and medical history,  your age, and so on. You’ll find the average disability insurance premiums will range anywhere between 1-3% of your annual income. For someone earning $30,000 a year, your disability insurance premium might be as little as $300 a year, or it could range upwards of $1,000 per year.

To note, however, disability insurance premiums may be tax deductible, which can reduce the overall cost of your coverage. Plus, many employers offer disability as a group package.

What is critical illness insurance?

Critical illness insurance is a form of insurance protection which offers financial benefits to anyone who has been diagnosed with what is considered a critical illness, such as a heart attack, cancer, or a stroke. Critical illness will offer a lump sump benefit to the insured individual, which may then be used to cover medical expenses or other costs pertaining to a critical illness.

Critical illness policies may usually be offered in tandem with traditional health insurance, and can cover the gaps that most health insurance policies leave behind. Critical illness offers financial benefits for individuals that suffer a critical illness diagnosis, and can help them maintain their standard of living if they are unable to continue working.

How much does critical illness insurance cost?

Similar to our answer from previous, regarding the cost of disability insurance, the cost of critical illness insurance is highly dependent on factors like age, coverage amount, existing medical conditions and health status, smoking status, etc. Most premiums for critical illness range between $30 to $100 a month. The actual cost of critical illness will really depend on your circumstances, so take these ranges with a grain of salt.

Like disability insurance, critical illness insurance premiums may be tax deductible. Many providers will also offer discounts for policyholders who cover multiple family members under a single policy or who choose a longer term of coverage.

In conclusion

All three of these insurance policies – life, disability, and critical illness – are integral forms of insurance coverage that may offer necessary financial compensation in the event an unexpected event occurs in the future. You can use these policies to protect your family in the event of your death or use them to maintain your standard of living if you should become unable to work as a result of a critical illness, disability, or you may purchase these policies simply to supplement the benefits that your employer currently provides. Chat with a financial advisor or one of Excalibur’s Defenders today to find out what options are best for you and your family.