I’ve been gathering information on disability insurance and critical illness insurance for a self-employed client in Ontario. It’s frustrating that this information isn’t more widely available online. I wondered if it was because each policy is just so unique to the individual, but I thought there must be a standard formula by age, gender, and amount of coverage needed.

For example, let’s take a 48-year-old woman (non-smoker) who is self-employed and looking for disability coverage to replace $3,000/month income until age 65. How much would she have to pay each month to get a disability policy?

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I reached out to Canada Life, a leading insurance provider in Canada, to get answers. Here’s what they had to say:

Is there an industry standard formula for choosing what to quote for disability income insurance?

While it is possible to apply a standard formula for a quote, it would only tell part of the story.

Across the insurance industry, disability illness insurance quotes factor in the following relatively standard considerations, each of which affects the price (or ‘premium’):

  • The amount of income to be replaced
  • How ‘total disability’ is to be defined
  • How quickly after a claim does the replacement income need to “kick in”
  • How long benefits will be paid; and
  • Whether or not there will be added coverage for partial disability

Given that the answers to each question will be highly personalized, the standard estimate may not reflect the final premium for the coverage best-suited to the applicant’s unique needs.

What are the pros and cons of disability illness insurance and critical illness insurance?

Disability insurance and critical illness insurance meet very different needs, and are used in response to different conditions. Disability insurance typically provides a monthly benefit to help replace the income from your employment should you become sick or hurt and unable to work, while critical illness provides a one-time lump sum payment if the individual is diagnosed with one of approximately 24 defined illnesses, the most common being cancer, heart attacks and stroke.

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Disability insurance is designed to help you to meet your monthly living expenses while you focus on rehabilitation and return to work. Critical illness can be used to cover extraordinary costs associated with your illness like childcare, transportation or prescription medications, or to help family members travel to visit you while you are receiving treatment or recuperating.

Please provide estimates for case study: 48-year old woman (non-smoker) who is self-employed and looking for disability coverage to replace $3,000 / month income until age 65.

Estimate #1A – disability insurance: A Canada Life disability income policy for a female age 48, non-smoker with $3,000 of monthly benefit, a 90-day start with benefits payable to age 65, a “regular occupation” definition of total disability and partial disability benefits would cost $194.30 per month if her primary duties are generally office/administrative.

Estimate #1B – disability insurance: If her duties or occupation is more physical her premium would be $220.52 per month.

Related: Long-term care insurance – To buy or not to buy?

Estimate #2 – critical illness insurance: If the same 48-year-old female, non-smoker, purchased $100,000 of critical illness insurance it would cost $133.02 per month for basic coverage. As with disability insurance, there are additional benefits that can be added that would increase the premium.

Final thoughts

Unlike mortgages and other products that are transparent and comparable online, the insurance industry is still shrouded in mystery. Because quotes and coverage can vary widely from insurer-to-insurer, it’s important to shop around to not only find the best deal but to ensure that the coverage is adequate and there aren’t any “gotcha” clauses that might trip you up down the road.

If you’re looking for disability coverage outside of your workplace plan, or because you’re self-employed, I highly encourage you to call several insurance providers and compare policies. Then call an insurance broker and see what type of plans they come up with. The key is to shop around and not settle on the first policy that comes across your desk.

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