families live on the earned income of one or two income earners.
The disability of an income earner results in the partial or
total loss of this essential income for the duration of the
disability. For many families, the loss of income and the increase
in expenses caused by disability represent a significant financial
loss that could lead to undue hardship and even bankruptcy.
For example, if you saved 5% of your annual income for 10 years
it would take only six months to wipe out the savings.
disability is a physical or mental impairment caused by an
accident or illness that partially or totally limits one's
ability to perform an occupation for which one is suited by
education, training or experience. Although the probability
of suffering a disability of 90 days or more before the age
of 65 is considerably greater than the probability of death
before that age, disability insurance is often overlooked
in the financial planning process.
plans offer limited
protection as part of a social security benefit. Group
plans generally offer limited protection, but at low cost
to the individual while Individual plans offer the
most extensive protection but at a higher cost.
individuals do not appreciate how little protection they have
under their disability insurance coverage. Many have no coverage
other than that offered by the Canada Pension Plan and Employment
replacement plans are not always easy to understand. That’s
why we recommend you talk with a qualified insurance broker
about carefully protecting your financial future.
are 10 tips on what to ask about:
Definition of Disability:
most important thing to know about your disability insurance
plan is what’s meant by disability. There are many variations
and there may be different definitions depending on how long
your claim lasts.
own occupation definition
means that you’re considered disabled if you can’t perform
the duties of your usual job. For instance, a dentist would
be disabled if he/she broke an arm, but a lawyer probably
wouldn’t be. Own occupation definitions are generally only
found in policies sold to professionals.
are commonly used, and are similar to the own occupation definition
except that your disability ends if you go back to work at
a new occupation. However, as long as you’re not working because
you can’t do your regular job, you’re considered to be disabled.
You’ll often find income replacement plans that provide a
regular occupation definition but only for the first 2 to
5 years of a disability. After that, the definition may switch
to an any occupation definition.
An any occupation definition is stricter since you’ll only be considered
disabled of you are unable to work at ANY job (generally for
which you are qualified).
When will the benefit kick in?
you’re hurt or get sick, there will usually be an “elimination
period” or “waiting period” before the benefit starts. With
a long waiting period, you’ll need some other source of income
before your benefit begins.
How long will the benefit last?
usually want a benefit period to age 65 just in case you are
severely disabled and can never return to work.
What about recurring disabilities?
what happens if you have a chronic condition like colitis?
Do you have to meet waiting period each time you’re sick.
check your plan carefully or ask your broker about any circumstances
where your claim would NOT get paid. Generally speaking, you
want to be sure that you have 24 hour protection for all types
of injuries and illnesses.
Offsets or Reductions
sure you know whether any disability payments would be reduced
(and by how much) because of other sources of income or limits
in your plan.
What if you can work part-time?
quite common that an illness or injury might make it impossible
for you to work full-time but doesn’t completely incapacitate
you. Does your income replacement plan have a “partial” or
“residual” benefit? A plan with “residual” benefits pays you
a disability benefit in proportion to how much your income
your plan guarantee the premium rates and/or the policy provisions?
Some individual income replacement plans are “non-cancelable”
and the insurance company cannot raise the premiums or restrict
means that you own your income replacement coverage wherever
you go. This is a downside of employer-provided disability
plans because if you quit or lose your job, you might be without
any kind of income protection. And, you might not be able
to qualify for an individual income replacement plan—insurance
companies generally require that you be working steadily (sometimes
for a year) and be in good health.
Adjustments for Inflation
your coverage keep pace with any increases in your income?
More importantly, will your benefits grow over time if you’re
disabled? Say you had to stop working at age 40 because of
multiple sclerosis—without any cost of living adjustments
you would have to live on a fixed income until age 65.
benefits and options are constantly being added to disability
contracts. Health maintenance benefits,
return to work assistance benefits, healthcare professional
riders, long-term care benefits and critical illness benefits
are among those benefits that have recently been added to
some disability contracts.
The information contained in this commentary is designed
to provide you with general information only, and is not intended
to be comprehensive advice applicable to the circumstances
of any individual. We strongly urge you to seek professional
assistance before acting upon information included herein.