Disability insurance can be a confusing and tricky topic. And if you’re not educating yourself and reading the fine print, you could be relying on inaccurate myths when making the key decision of deciding how much you’ll need. Disability insurance typically provides a monthly cash payment to you if you are unable to work because of illness or injury. Over 3.6 million Canadians have a disability (that’s one in eight, or roughly 13% of the population) and it only increases with age. On average 1 in 3 people will be disabled for ninety days or longer at least once before age sixty-five.
Imagine you had a machine in your basement that printed out $5,000 a month. Wouldn’t you do everything you could to keep it running smoothly? And if you could buy insurance that if it broke down you would keep getting your $5,000, well that machine is you. Disability insurance is designed to replace a portion of your lost income, so you can only buy disability insurance if you have employment or self-employment income. Since you likely rely on your income to maintain your lifestyle, a temporary or permanent loss of income could be financially devastating. And because disabilities can last for months or even years having guaranteed income while you’re off work can be critical.
Workplace coverage may not be enough. You may already have disability insurance through your group benefits plan at work, but group disability plans can be more restrictive in terms of the percentage of income they replace and the definition of disability. If your employer has Workers’ Compensation in place, you are offered that if you are injured in the course of your work. But you need to know, that the chances of getting disabled at work typically are lower than outside of work. They may have a group disability coverage in place, but this coverage ends when you leave your employer.
When searching for disability insurance you should make sure that these five features are either included or can be added to your policy depending on your profession.
- Non-cancelable coverage. This means the insurance company cannot cancel your coverage or adjust your premiums on a class-wide basis. This ensures that the coverage will remain in effect until the insured turns sixty-five. The premiums are guaranteed to never increase.
- Own occupation’ definition. This allows a professional such as (lawyers, doctors, engineers) that has a significant investment in their occupation, including years of training and acquired experience, to work in another occupation while they are totally disabled and still receive their disability benefits. The ‘own occupation’ rider modifies the definition of total disability under a basic plan, so you’ll be considered totally disabled even if the insured is engaged in another gainful occupation.
- Residual disability benefit. This benefit allows those who are not totally disabled to receive a residual disability payment.
- Cost of living benefit. This is usually a rider that can be added to most disability policies, which makes sure the monthly benefit stays in line with inflation.
- A future income option. This allows the insured to increase his or her coverage at different points in the future without evidence of insurability; however, it does require that the insured provide income evidence to justify the increase.
Take action while you’re healthy. If your health deteriorates or you’re disabled in an accident, an application for disability coverage will often be denied or you may only qualify for more limited coverage. And it will likely cost more. You can get better pricing if your job is not dangerous like being a member of the police bomb squad. You have a good driving record and you don’t partake in extreme sports such as sky-diving and rock climbing.
I remember what happened to a friend of mine a few years back. He was out hiking with friends and a rock fell on his head. It was so random and so life-changing. At thirty-two, he was unable to work and faced many months of rehab just to learn how to walk and talk again. That event was a wake-up call for me. I wondered what I would do if something happened to me and I couldn’t work. I’m self-employed and don’t have any employer benefits. Who would pay my bills? Would I be able to afford any extra medical expenses? Disability insurance is absolutely essential if you are self-employed. Even if you’re healthy, an accident or illness can change everything.