Disability Insurance gives you a monthly income if you are unable to work because of sickness or injury.
Every year, 12% of the adult Canadian population suffers a long-term disability. Your chance is high of having at least one disability lasting 90 days or more before age 65:
If you’re: age 25 –61%, age 30 –58%, age 35 –55%, age 40 –51%, age 45 –46%, age 50 –40%
Many experts believe disability insurance is the foundation of all insurance. This is because your income pays for everything, including your other insurances. If you can’t pay the bills, who will?
Group Disability Insurance? This is a good start for most people, but these employer sponsored plans often need to be supplemented and integrated with a solid Personal Disability Insurance Plan.
What are some of the Problems with Group Disability Insurance?
- To keep costs down, some employers only offer short term disability which ends at 6 weeks.
- One out of every seven workers will suffer a five-year or longer period of disability before age 65,
- The long term policy definition of disability on your group plan is possibly very restrictive. For example “unable to work at any occupation”. If the policy has a reasonable definition, for instance “unable to perform the main duties of your regular occupation”; this definition will likely change to a more restrictive definition, typically after 2 years of disability. Only a very small percentage of workers on a group plan are paid anything after the 2 year definition change. If you’re suddenly cut off from your monthly group disability insurance payments what will you do?
- Not portable. If you change jobs, get laid off, or your employer goes out of business then you do not have insurance.
- No control. Your employer may change or just cancel the plan at any time.
- No indexing. Do you want your disability benefit to diminish with inflation?
- Restricted benefit. Are they allowing you to insure up to the maximum allowable amount of your income?
- No partial or residual benefit. What happens if you are disabled just part of the time?
Government Employment Insurance? If you qualify you will only receive about 55% of what you were making, for a maximum period of 15 weeks and this amount is taxable to you.
Canada Pension Plan Disability Benefit? If you qualify through contributions and meet their strict definitions you could be eligible for a maximum of about $1,153 and this amount is taxable to you. Most people will not meet their strict definitions of severe and prolonged.
Workers’ Compensation Board? This only covers you about 1/6 of the time. You’re not covered for sickness and you’re not covered when you’re off the job. This means you’re vulnerable when you’re at home, in the yard, playing sports, on holidays, doing your hobbies or leisure activities, etc.
WCB only covers you for a work related injury. Most people who receive disability income are getting that benefit because they have a sickness not because they got into an accident while at work.
If you want to protect your greatest asset, your ability to earn income, you’re going to need some help. Personal Disability Insurance comes in many forms with many options.
What are the Benefits of Owning your own Personal Disability Insurance?
> You own and control. You call the shots.
> You choose your definition of disability.
> You choose the amount of benefit.
> You choose the duration of benefit period. From 2 years to age 65.
> You choose the elimination period. This is the waiting period before your insurance kicks in. Usually 30 days, 60 days, 90 days, 120 days, 180 days, 1 year, and 2 years. The sweet spot between benefit and cost is about 90 days.
> You choose riders you think are important for you, such as, Future Insurance Guarantee, Indexing for Inflation, Own Occupation, Retirement Protection Options, Return of Premium, and others.
> Allows for Partial and Residual disability. Are you disabled part time or off and on?
> Not taxable.
> Recovery assistance.
Be Careful: Of any bank insurance plans for disability, they usually have some restrictive definitions of disability. If you get disabled you want your insurance plan to pay you. You don’t want it to fall apart at such a critical time, right?
Be Careful: Of your group disability insurance at work, because after 2 years the definition of disability likely changes so that you no longer qualify for your monthly disability income benefit. So it’s really only a 2 year disability plan at most.
Tip 1: If you think you’ll beat the odds and won’t get disabled, you might want to consider a Return of Premium Rider to get your money back if you don’t make a claim.
Tip 2: If you have a group disability plan that has a decent definition of disability for the first 2 years, but gets imited after that, then you might want to consider getting a personal plan that has a 2 year elimination period, with a good definition of disability.
That way if you are disabled long term you still have complete coverage. So for the first 2 years your group plan pays you a monthly benefit, and then if that group plan cuts you off, your personal plan kicks in to start paying you a monthly benefit.
This is a great way to integrate the 2 plans while keeping your cost down.