If you are young and healthy, you probably haven’t given disability insurance a second thought.  But check out these statistics.  At age 30 there is an almost three in one chance that you will become disabled at least temporarily (90 days or less) at some time before you die.  After age 50 the odds are two to one.

Personal disability insurance provides you with an income in the event that an accident or long-term illness prevents you from earning a living.  If you couldn’t survive financially without your income, or if you have dependents, you will need disability coverage.

Disability Insurance

Your employer may provide disability coverage as part of a group benefits plan but not all companies do, so go and find that 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.

Often your employer will pay full salary for up to 30 days and after that time their insurance company will take over the payments at a reduced rate subject to evaluations from your doctor.

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 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.

Disability insurance coverage is normally restricted to a maximum of 66.6% of gross income.  If you are not covered by your employer, or you need more coverage, or you are self-employed or work on contract you can purchase disability insurance privately.

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:

• Cost
• Benefits
• How long benefits will be paid
• 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).  This is of course subject to your resources – how much emergency savings or other sources of income you have.

You can also save on a policy where you will take any type of job that you are able to do with your disability rather than a “same employment” policy (depending on the type of work you do).

You can do some comparisons online at www.disabilityincome.com or www.rbcinsurance.com/healthinsurance/compare-disability-plans.

But don’t just shop for rates.  Take your time.  Insurance policies are not easy to read or understand.  These sites provide FAQ’s and forums for more information.

I suggest you narrow your choices to two or three companies and then speak directly to an insurance representative to be as fully informed as possible.

In the event that you suffer from an accident that renders you disabled, you should also be thinking about consulting a long term disability attorney.  Not only can they potentially help you with medical expenses and other aspects of your condition, but they can also work with you and your specific case to ensure that you get the best possible insurance for your condition.  You have nothing to lose by at least speaking with a skilled attorney regarding disability coverage, and in most cases they are only a phone call away.

Last week I talked about life insurance, defined some key industry terms, and gave some tips on how much insurance you should buy, if any. Now we’re going to look at the best types of insurance, as well as how to avoid life insurance gimmick products.

You’ve heard the phrase, “buy term and invest the difference”? Term insurance is pure insurance protection, there are no gimmicks, bells or whistles. The premiums per $1,000 of insurance are the lowest of any form of life insurance, often by 50 percent less than whole life plans. Term insurance is cheap and pays sales people far less in commissions, and therefore is rarely offered unless you insist.

There are no valid financial reasons for buying or keeping whole life or universal life policies at any age. You are always better off buying term insurance and investing the difference yourself.  Unless your health is deteriorating and you are no longer insurable, you should drop your whole life or universal life policy and replace it with term, investing the difference in your RRSP, TFSA or non-registered account.

If possible, don’t set up your insurance policy to pay out a lump-sum upon your death. Set up your life insurance plan to have the proceeds invested so that income is generated for many years, rather than subjecting a lump sum to unintended mismanagement or bad financial advice.

Here are a examples of life insurance gimmicks to avoid:

1. Never buy whole life insurance as an investment – They say that whole life is a plan where your money goes into a “hole” never to be seen again.  Whole life policies typically have level premiums (equal yearly installments) and claim to build tax-deferred cash value. The problem is that the cash value, which is built up by your premium payments, is minuscule compared to what you could create with proper investments.
2. Never buy life insurance when you’re young just because it will cost less – The only reason to buy life insurance when you are young is for financial protection for your family, not saving money.
3. Never buy life insurance just to avoid the threat of being uninsurable in the future – All insurance is a bet and the odds are overwhelmingly in your favour when it comes to insurability. Future insurability is a scare tactic used by salesmen for the purpose of selling you more insurance at an early age.
4. Never buy life insurance just because you recognize the company name – Just because you recognize the name from ad’s on TV doesn’t make the insurance any better.  Make your choice based on lowest rates, not name recognition.
5. Never buy double indemnity for accidental death – When you buy this option, twice the face amount of the policy will be paid to the beneficiary, but only if the insured dies an accidental death.  It is cheaper just to top up the base amount of your policy than to pay for this expensive option.

Purchasing life insurance can be one of the most confusing financial decisions you ever make, but with a little knowledge and understanding of the type of insurance and amount of coverage you require, you’ll be prepared to buy the right policy for you and your family.