Many wage earners are diligent in purchasing life insurance to protect their families in the event of their early death, but many do not consider disability insurance.
The fact is that people under 50 are more likely to become disabled than die – almost 35% will suffer a long term illness or disability lasting longer than 3 months.
Consider the case of Bill, a 28 year-old professional. A few months after his 28th birthday, he was severely injured in a debilitating accident.
After recuperating from operations on his back and eyes he was still left with spinal damage, partial paralysis in one leg and partial blindness in one eye. He found it difficult to walk, stand, or sit for extended periods of time.
Needless to say, this made it challenging to secure any type of long-term employment at a time when he had a young family.
There are several options when it comes to disability insurance. It's important to become familiar with these possibilities and determine which is best for you and your family.
Group Disability Insurance
Your employer may provide disability coverage as part of a group benefits plan but not all companies do, so go and find the benefits package you received and check it out, or contact your benefits administrator.
You have to determine how much your plan covers and for how long. Don’t assume that you have enough disability coverage. Many employers offer minimal coverage, and some policies impose strict conditions that must be met to qualify for benefits.
Even if your employer provides adequate disability coverage, remember that when your employment ends, so does your coverage.
Don’t assume that the government will take care of you. Government plans are there such as Workers Compensation for injuries on the job, and CPP may provide minimal monthly benefits until you turn 65 (at which time regular CPP begins) or until you recover from the disability.
However, for most people, the benefits are nowhere near the income they will need.
Individual Disability Insurance
Individual disability insurance plans can be tailored to your requirements, with guaranteed results. The more benefits and broader the terms, the higher the premiums. It’s worthwhile to calculate the exact level of protection that you need and where you are able to cut some of the costs.
Some terms to look at are the waiting (or elimination) period before you start receiving payments, own occupation or any occupation, cost of living adjustments, benefit period (the length of time the insurer will pay you - usually to age 65.)
Individual disability insurance plans vary from company to company. The amount of coverage you need will depend on:
- Your monthly expenses
- How long your pay cheques would continue if you became disabled
- How long your savings would last if your income stopped today
- How your pension would be affected by a long-term disability
- Other sources of income you may have
When comparing policies, look at:
- How long benefits will be paid (benefit period)
- The terms of the policy
- The waiting period before you receive your first benefit payment
You will save on premiums if you take a longer waiting period before receiving benefits (e.g. 90 to 120 days rather than 30 or 60). This is of course subject to your resources – how much emergency savings or other sources of income you have.
It is recommended to speak to a professional disability insurance advisor to determine the best private disability insurance policy for you and your family. There is no fee for meeting with an advisor and having them develop options for your consideration.
Your earning potential is your most valuable asset and you need to protect it. Accidents and illness can happen at any time.
How devastating would it be for people who have worked for years to lose everything because they were not properly covered?
Parents, especially if single, need a back-up plan to protect their earnings. Contract workers and the self-employed need to ensure their future income.
Be sure to investigate all your sources of replacement income and be prepared. In general, an individual disability insurance policy is the best option for most people.
And make certain to insure your capacity to make an income; otherwise it will be the most important asset you forgot to address.
Interested in learning more about Disability Insurance and how it can protect you and your family? Download our free ebook: The Beginner's Guide to Disability Insurance.