kotak: long-term disability coverage versus critical illness insurance
there are important differences between critical illness insurance and long-term disability coverage, including tax implications and what each pays for.
4 minute read
long-term disability provides income when disability or illness prevents you from working. getty
most canadian adults are familiar with long-term disability coverage, but what about critical illness coverage? if you are considering making an ‘either/or’ choice between long-term disability (ltd) coverage or critical illness coverage, experts generally advise purchasing ltd. depending on the wording of the policy, it will provide income replacement when any type of disability or illness prevents you from working, including injuries sustained in a motor vehicle accident (generally applicable for group policies after two years).
critical illness insurance, however, only provides help if you sustain one of the specific illnesses specified in your plan. also, critical illness insurance pays only the amount agreed to in your policy, but ltd coverage will provide an income up to age 65 if you are unable to perform work for which you are reasonably suited as a result of your disability, injury or illness.
unsure about critical illness insurance? consider the statistics
the reality is that in 2022, cancer researchers estimated that there would be 233,900 new cancer cases and 85,100 cancer deaths in canada. and canada’s heart and stroke society warns that each year an estimated 35,000 cardiac arrests and more than 108,000 strokes occur in canada, with strokes being a leading cause of death and a major cause of disability. those are a lot of reasons — along with your health profile and family history — to consider opting for critical illness coverage.
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how is critical illness insurance different from long-term disability coverage?
ltd benefits take the form of income replacement, typically paid monthly to a claimant, whereas critical illness plans pay out a lump-sum payment when someone is diagnosed with a life-altering illness that is covered by their policy.
a critical illness payment is tax-free (when the individual has paid 100 per cent of their premiums) and can be spent in any way a person sees fit. for example, theoretically it could be used for a vacation, but it’s a good idea to get medical clearance first. also, the payment has no effect on the amount of ltd benefits a claimant may also be receiving. ltd benefits are subject to a tax deduction if the premiums were paid by the employer, however, if the premiums were paid by the insured, then the benefits are non-taxable.
one key objective of critical illness coverage is to help claimants pay for the best available medical treatment, which may not be covered by their provincial health insurance. other common expenses that can arise when someone has a serious illness are caregiver expenses and lost income — for example, if a family member must stay home to support and care for the claimant. critical illness insurance can also pay travel expenses for someone who seeks out-of-province medical care.
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one important thing to note is that critical illness insurance policies are not standardized and can differ significantly between insurance providers. some plans cover only one illness (such as cancer), while others cover a few common conditions, like cancer, heart disease and stroke. and then there are policies that cover a long list of serious illnesses and conditions.
what kinds of cancer does your policy cover?
if your plan covers cancer, as most basic plans do, check the fine print to determine whether it will pay for all types of cancer or only the more serious forms of cancer. there may be numerous exclusions in your policy, so ask your broker to clarify these before signing up to pay for a particular coverage.
what critical illness coverage and long-term disability benefits have in common is the fact that insurance companies sometimes unfairly deny coverage for persons who are legitimately sick or disabled.
sometimes people are unfairly denied coverage
people who are already ill or have a pre-existing condition will generally not be eligible for critical illness coverage in fact, most critical illness coverage providers have a long list of illnesses and conditions that exclude a person from seeking coverage, such as alzheimer’s disease, cancer, insulin-dependent diabetes, hiv, heart attack, and kidney failure.
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policies may also specify a survival period that must be met after the illness has been diagnosed before a payout will be made. for example, there may be a requirement that the claimant survives 30 days after diagnosis before receiving payment.
if you are interested in purchasing critical illness coverage, it’s a good idea to shop around, and in most cases, you must agree to a medical exam. it’s also good to keep in mind that healthier applicants have lower premiums than those who are less healthy.
nainesh kotak, is the founder of kotak personal injury law, a firm focusing on protecting their client’s rights to justice and obtaining the compensation their clients deserve. he also serves as the chair of the long-term disability section of the ontario trial lawyers’ association.
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