The Difference between Critical Illness and Disability Insurance

While not a life insurance product, I think it is worth mentioning about the other two more popular types of insurance. Instead of paying a death benefit, critical illness insurance and disability insurance pay a living benefit. Critical illness (CI) insurance was developed by a South African doctor in the early 1980's after he was alarmed that while many of his patients had standard life insurance, it was of no use to them if they had a heart attack and survived. Critical illness insurance will pay a lump sum benefit should you be diagnosed with a serious illness or condition and survive a set time frame (usually one month). The big three conditions are heart attack, stroke and cancer - but some insurance companies add additional 18 - 20 conditions under their plans (leukemia, severe burns, loss of limbs...). CI application forms are very similar to their life insurance counterparts, the biggest difference being that a far greater weight is placed on you immediate family's health history. The insurance company needs to know if there is a history of heart attack or other diseases to determine your eligibility for this type of insurance. It is vitally important to read and understand the definitions of all of these illnesses, as some of them can be very technical. Also you will have additional riders (add-ons), that you can select when you sign up for this type of insurance - the most popular being the 'return of premium' rider (ROP). If you select the return of premium rider, you will be able to have all (or a portion) of your premiums refunded to you, if you have not collected on the policy over a specific timeframe. Disability insurance will pay a monthly benefit while you are disabled and cannot work or perform your regular duties. This type of insurance while not complicated does have a tremendous amount variation. Firstly the monthly benefit that is paid to you generally cannot exceed 66% of your current salary; you will need to wait a specific waiting period before you collect the benefit, the benefit can last for two or five years or until you reach age 65. All of these factors will determine how much you monthly premiums will cost. There will be additional riders (add-ons) that you will need to consider at the time of application. You can select a return of premium rider (as described above), a future needs rider (you have the option to get more money as you age and salary increases), a cost of living rider (the benefit is increased with inflation), an own occupation rider (you cannot perform your job - but can you work elsewhere?). As you can see there are plenty of variations with both of these types of insurance and you should discuss the availability and other factors with your broker.