Life Insurance

Difference Between Life Insurance and Critical Illness Insurance

By RBC Insurance • Published January 15, 2026 • 8 Min Read

Most Canadians understand the role insurance plays in financial planning — yet many still have gaps in their coverage. A recent RBC Insurance poll highlights that disconnect: while 58 per cent of Canadians say life insurance is important, only 39 per cent actually have a policy. The shortfall is even bigger with critical illness coverage — 29 per cent say it matters, but just 9 per cent are covered.

That mismatch can have real consequences. Nearly one in three Canadians says their savings would run out within six months if they faced a major health setback. At the same time, not everyone is familiar with critical illness insurance, with 40 per cent of Canadians reporting little to no understanding of the product.

The reality is that life and critical illness insurance are designed to provide different solutions. No single policy is designed to handle every situation — and the whole “life vs. critical illness” confusion can start when those distinctions aren’t clearly understood. This article breaks down the key differences between life and critical illness insurance, explains what life and critical illness cover, and shows how they can work together to support a more complete protection plan for you and your family.

Key takeaways

Life and critical illness insurance are different types of insurance that can help protect your finances. Life insurance helps financially support your loved ones if you die, while critical illness insurance helps protect you if you’re diagnosed with a covered condition.
Life insurance pays a one-time, tax-free death benefit to your chosen beneficiaries, helping replace income, cover debts, and keep long-term financial plans intact.
Critical illness insurance pays a one-time, tax-free lump sum directly to you while you’re alive, giving you flexibility to manage everyday expenses, lost income, or medical costs.
Both types of insurance come in a range of options and prices, and in some cases can be purchased without a medical exam.
Depending on your insurance company, critical illness insurance can be purchased on its own or added to a life insurance policy as a rider.
Holding both forms of coverage can be especially valuable for people whose finances are tightly linked to their ability to work — like primary earners, business owners, and caregivers.

What is life insurance?

Life insurance is a type of insurance that pays a tax-free lump sum (called a death benefit) to your chosen beneficiaries when you die, as long as your policy is in good standing. Its primary purpose is to help protect the people who depend on you financially.

How life insurance works

In a nutshell, you make regular payments (called premiums) to an insurer in exchange for coverage up to a certain amount. If you die while the policy is active, your beneficiaries will receive a one-time, tax-free payment.

Learn more: What Does Life Insurance Cover?

Types of life insurance

There are several types of life insurance, including term, guaranteed acceptance, and permanent (such as whole life and universal life). Policies vary in duration and structure, but the core idea stays the same: providing financial protection for the people you leave behind.

Learn more: Term vs Permanent Life Insurance

How can the death benefit be used?

A life insurance payout, called the death benefit, can help your family regain their financial footing after you’ve passed away. Common uses include:

Replacing lost income
Paying off debts, such as a mortgage or loans
Covering funeral and final expenses
Providing financial stability for a spouse and/or dependents (e.g., paying for a child’s education)
Leaving a charitable donation

What is critical illness insurance?

Critical illness insurance pays you a one-time, tax-free lump sum if you’re diagnosed with a serious illness, helping you protect your lifestyle while you focus on recovering. Unlike life insurance, the benefit is paid directly to you.

How does critical illness insurance work?

You make regular payments (premiums) to an insurer in exchange for coverage. If you’re diagnosed with a covered illness and meet the policy requirements, you receive a one-time, tax-free benefit payment.

What does critical illness insurance cover?

Most policies cover serious conditions that can significantly disrupt your health and finances. That typically includes the big three — cancer, heart attack, and stroke — but some go further, covering conditions such as multiple sclerosis, dementia (including Alzheimer’s disease), major organ failure or transplant, blindness, deafness, and severe burns.

However, what’s covered always depends on the type of critical illness insurance you choose. Most plans typically don’t pay out for illnesses diagnosed before coverage started, and other limits or exclusions could apply.

Read more: What is critical illness?

How can the benefit be used?

In general, critical illness insurance is designed to help cover expenses if your life is put on pause. Because the payout is made directly to you, you have the flexibility to decide how to use it. Common uses may include:

Covering daily living expenses
Paying for out-of-pocket medical costs
Replacing lost income while you aren’t working
Covering costs to keep your small business afloat
Updating your home to meet medical needs
Taking time off to rest and recover.

Key differences between life and critical illness insurance

Life insurance and critical illness insurance are often talked about together — and for good reason. Each is designed to protect you financially but do so in very different ways and stages of life. Here’s a snapshot of the differences:

Feature	Life insurance	Critical illness insurance
Purpose	Helps support your loved ones financially if you die.	Helps support you financially if you’re diagnosed with a serious illness covered under the policy.
What triggers a payout	The policyholder’s death.	Diagnosis of a covered critical illness and survival of the waiting period (e.g., 30 days+).
Scope of coverage (i.e. what sorts of things are covered)	Death (subject to policy terms).	Critical illnesses listed in the policy (e.g., heart attack, stroke, cancer, etc.).
Beneficiary	Your chosen beneficiaries (e.g., spouse, children, charitable organizations, etc.).	You (the policyholder).
Coverage period	For a set term (e.g., 10 to 40 years) or for a lifetime, depending on the policy.	Usually for a set term (e.g., 10 years) or until a certain age (e.g., age 65), depending on the policy.
Flexibility	Benefit can be used for any purpose chosen by your beneficiaries.	Benefit can be used for any purpose chosen by you.
Benefit amount	$25,000 to $25 million, depending on the type of life insurance policy you choose.	$10,000 to $2 million or more, depending on type of critical illness policy you choose.
Cost of coverage	Depends on factors including age, health, plan, and coverage amount selected.	Depends on factors including age, health, plan, and coverage amount selected.
Who can be covered	Typically, available for Canadians aged 18 to 85, depending on the policy.	Typically, available for Canadians ages 18 to 65, depending on the policy.

Why both life and critical illness insurance are important

While life and critical illness insurance address distinct risks tied to changes in health —one policy can’t fully replace the other. Life insurance helps provide long-term protection for your loved ones after you’re gone. Critical illness insurance focuses on short-term financial support if illness affects your ability to work or manage everyday responsibilities while you’re alive.

Having both types of coverage can be especially helpful for Canadians whose financial security could be affected by injury, illness, or death. This may include:

Primary income earners who rely on their pay to cover major household expenses, such as a mortgage, car payments, or credit card debt
Business owners and self-employed individuals who may still need to cover operating expenses or arrange temporary help during recovery
Caregivers supporting children, aging family members, or loved ones with disabilities
Canadians without group health benefits, who may face out-of-pocket medical or recovery-related costs not fully covered by provincial or territorial health care.

Together, life and critical illness insurance can help create a powerful financial safety net if your health takes an unexpected turn.

Can you have both life and critical illness insurance?

Yes, many Canadians choose to have both life and critical illness insurance. Because each type of coverage protects against different risks, they can work together as a team to fortify your financial interests and protect your loved ones.

You can purchase a stand-alone critical illness insurance policy, or you can purchase life insurance with critical illness as a rider (optional coverage that can be added for an extra cost).

Additional peace of mind for you and your loved ones

Choosing between life insurance and critical illness insurance isn’t really about picking one over the other. It’s about understanding the different roles each type of policy plays and how they can work together to support you and your family if your health changes.

Life insurance looks ahead, helping protect the people you care about financially after you’re gone. Critical illness insurance focuses on the present, helping you manage expenses and income disruptions if a serious illness affects your ability to work. In either case, everyday responsibilities don’t stop. The mortgage still needs to be paid, bills still arrive, and the people who rely on you still need support.

Thinking about life vs. critical illness insurance coverage this way can help you make more confident choices about protecting yourself and the loved ones who matter most. If you have questions about which type of insurance policy is right for you, an accredited insurance advisor can help provide guidance and answer questions for your unique situation.

RBC Life Insurance

Protect Your Loved Ones With Dependable Life Insurance.

Get a quote

Learn More

RBC Critical Illness Insurance

Protect yourself and your loved ones with critical illness insurance.

Learn More

*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

Share This Article