Disability Insurance vs. Critical Illness Insurance
Disability insurance, also known as income replacement insurance, provides a monthly benefit to the insured if he or she become disabled and can no longer perform a normal day's work as per the definition of disability in the policy.
Disability insurance definitions are generally broken down into the following three categories:
Any Occupation - Under this definition, total disability means the inability to work at any occupation. Therefore, if you are a computer consultant, and your disability prevents you from performing your regular occupation duties, but you can still gainfully work as a checkout clerk -- you will not receive a cent.
Regular Occupation -Under this definition, total disability means the inability to work at your regular occupation due to an injury or an illness.
Own Occupation - This is the gold standard definition. Under this definition, total disability is, the inability to work at your regular occupation regardless of whether you work in another gainful occupation.
All the things being equal, the better the definition of disability, the higher the monthly premium. This makes sense because the insurance company has an increased likelihood of paying out your claim.
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Critical Illness insurance on the other hand, pays a lump sum benefit if the insured is diagnosed with a critical illness listed on their policy. The number of critical illnesses can range from 3 to 25. Critical Illness definitions are similar among many companies, but it is best to check with a broker who works with multiple carriers.
Critical Illness payouts are not tied to the insured’s ability to work and the premiums are generally level for 10 years, 20 years, to age 75 or to age 100. The longer the premium guarantee period, the higher the initial premium.