Disability Income Insurance

The Purpose of Disability Insurance

Like most people you probably have insurance on your house, your car, and maybe even extended warranties on some of the electronics or appliances that you own. But have you ever insured your single biggest asset: your ability to earn am income?

Disability insurance, otherwise known as “income replacement” insurance, provides a monthly income replacement benefit if you become disabled and can no longer perform the normal duties of your work.

Generally speaking, the benefit is limited to a percentage of your regular income and ceases once you begin working again or else no longer meet the definition of disability in the contract.

A coverage of 60% is quite typical and is designed that way to keep you financially motivated enough to return to the workplace as soon as possible.

Unlike critical illness insurance which provides the full policy benefit in a lump sum payment upon diagnosis of a critical illness, long-term disability policies may have a waiting or elimination period from the onset of a disability to the beginning of benefit payments.

This period can range anywhere from between 0 to 120 days, and will have a direct bearing on the cost of your insurance. The shorter the waiting period the higher the premium.

Long-term disability policies can also vary in the duration of the coverage. Some plans may pay out for 2, 5, 10 years etc., while others may pay to age 65.

Disability Policy Definitions

Generally disability policies are classified as either “Own Occupation” or “Any Occupation,” but may also be a combination of the two.

Own Occupation Coverage

Own Occupation coverage or “regular occupation” is defined as the inability to perform the duties of your usual job. These types of policies are appropriate for those occupations that require special education or experience and are sensitive to even minor health problems.

Surgeons would be considered disabled if they developed a nervous tremor; airline pilots would be able to collect benefits if they suffered an eye injury. An accountant on the other hand, could lose an eye, or a foot, and still be able to carry on with with his or her regular routine.

Any Occupation Coverage

Any Occupation coverage is defined as the inability to work under any circumstances at any job for which you are reasonably qualified based on age, education, training, or experience. If such was the case you would be considered total disabled. As a rule any-occupation insurance tends to be relatively cheap compared to own-occupation disability insurance.

You need to understand the disability definition of your plan as it will determine whether or not you’ll receive a disability benefit if you’re not able to work. Some policies will use the “own occupation” definition for the first two years, but will continue to pay benefits only if you qualify under the “any occupation” definition after that time.

Why Consider Disability Income Insurance?

You are 25 years old earning $60,000 a year when suddenly you are overcome by injury or sickness and unable to continue working. That represents $2.4 Million dollars of lost income over the next 40 years, not counting raises, promotions, and bonuses. Accidents and illnesses are a fact of life. They could happen to anyone at any time. Statistics show that:

  • 1 in 3 people, on average will be disabled for 90 days or more at least once before age 65.
  • The average length of a disability that lasts over 90 days is 2.9 years.

Your quality of life, your children’s college education, and your savings for a comfortable retirement all depend on your ability to earn a living. Even if you already have some disability insurance through your employer, it may not be adequate. Plus, if you ever change jobs, your employer-sponsored disability insurance will most likely end with your employment.

What’s more, disability benefits under the Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) limit the benefits you can receive. Disability coverage should definitely be considered a priority if you work for a company that does not provide a group insurance plan. Other candidates include:

  • self-employed workers
  • small-business owners

Health insurance can help with the medical bills, but to replace lost income you need disability income protection insurance. Use our disability needs calculator to help you identify the income you need to maintain your current standard of living if you can’t work because of a disability.

Call us today to apply or to discuss your needs with a licensed insurance advisor.

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