Disability Insurance

Why Do I Need Disability Insurance?

Most people don’t give disability insurance much thought.  Some people might not even be aware that it exists.  But roughly one-third of all Canadians will suffer a disability that lasts 90 days or more by the time they turn 65, and a surprising number of these disabilities last up to several years or even longer.  Other types of insurance sometimes provide coverage, but they have limitations that do not apply to disability policies.  Workers’ compensation covers you only if you are injured at work — if you suffer injury when you are not at work you won’t be covered.  Unemployment insurance might cover you, but only for a limited period of time.  Some employers offer group policies, but benefits through these are often minimal.

If you suffer a disability that makes it impossible for you to work for months or even years, how will you and your family survive?  Disability policies offer long-term coverage — an entire lifetime in some circumstances — that other types of insurance do not provide.  A typical policy runs only about 1% to 3% of income your income.  A disability policy is an affordable way to protect you and your family from financial disaster.

What Is Disability Insurance?

When we talk about disability, what are we talking about?  Number 1 on the list is mental health issues that include depression, drug, and alcohol-related problems, and dementia including Alzheimer’s.  Nearly a third of all disability claims are related to mental health issues.  Cancer and heart disease together account for about as many cases as mental issues.  Physical injuries, caused on or off the job by anything from car collisions, falls, sporting accidents, and such are well down the list.  Other causes include chronic fatigue syndrome, infectious diseases, arthritis, and more.  As is the case with all types of insurance, exclusions apply, and you need to read the fine print before buying any disability insurance policy, but most policies offer broad coverage.

Are There Exclusions for Disability Insurance?

Sometimes. With any insurance product, it’s important to understand the benefits and limitations of what the policy covers.

What Is A Waiting Period?

A waiting period is a time between when your injury or illness occurs and when the disability insurance policy starts to pay. In theory, it’s similar to a deductible for your car insurance. Another way to think about it is the portion of the claim that you’re financially responsible for.

In all policies, there is a waiting period before you can receive funds from a claim. If you have a bad cold and are out of work for a week, your disability policy will not pay.  The minimum waiting period on almost all policies is 30 days of inability to work; some policies provide for as much as a two-year waiting period before you can claim. This is something to plan for when you decide which policy is best suited for you.

What should you be looking for when you review a policy’s exclusions?  Common waiting periods are 30, 60, and 90 days. When reviewing quotes, most companies offer options on how long a waiting period you want. If you choose a longer waiting period (think: higher deductible), the monthly cost for your insurance premiums will be lower.

Premium: the amount you pay every month for the insurance.

What Is a Lifetime Maximum?

Many policies have a maximum amount payable over the course of your life; 1 or 2 million dollars is common.  Policies also have cutoffs with respect to your age — that is, they pay for a specified number of years or until a specified age, perhaps 65 or 70 or 75.  Some policies will pay until your death.  The longer your policy pays, the more you will pay in your monthly premium.

What If I Have A Pre-Existing Condition?

Virtually all policies exclude pre-existing conditions.  In some cases you might be required to undergo an examination by a doctor before an insurer will write a policy.  If you have significant pre-existing conditions you still might be able to get coverage, but issues related to the pre-existing condition will be excluded.

TIP: An excellent time to buy a disability policy is while you are healthy and YOUNG.  It’s easy to get coverage then.  Don’t wait until you have suffered a disability before deciding that you need a disability policy.

How Much Disability Coverage Should I Get?

You can buy any amount of coverage that you want, up to your earning capacity, but how much is recommended?  Typically the average family needs about 70% of their income to cover their essential expenses.  If you can afford more coverage than this, great!  If your budget is limited and you are having trouble paying for this much coverage, the waiting periods and maximums discussed about can be set to save you on your monthly premiums.  A longer waiting period or a cutoff that is set at a lower age will reduce the premiums.  Skilled and experienced agents such as those at Dickson Insurance know the ropes on how to get you the coverage you need at a price you can afford.  In any case, a policy that provides less than the optimal level of protection is far better than no coverage at all.

Do I Have To Pay Taxes on Disability Payments?

If you make a disability claim and receive payments, do you have to pay taxes on the money you receive? No (phew).

If you pay the entire premium yourself, payments are not taxed.  Thus, if your coverage is 70% of your income, you will actually end up with more than 70%.

How Does Personal Disability Compare to Government Plans?

Private/personal policies provide greater benefits and broader coverage.  Relying solely on other options has much bigger risks.

What Is the Bottom Line?

A long-term disability, even one that lasts only a matter of months, can send you and your family into financial hardship.  Private disability policies are affordable, and provide broad coverage for the long-term.  Don’t wait until you become disabled to discover how important disability coverage is.

Contact Dickson Insurance for a free, full explanation of what you can get, at a price you can afford.

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