Understanding Disability Insurance

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.

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  1. Peter Klaven on May 25, 2011 at 11:38 am

    It’s impossible to predict who will become disabled at what time. That’s why having a long term disability insurance as well as good benefits is an absolute must. When I broke my leg on the job I thought I was going to be in the poor house. Then I found my service provider, and it was like a breath of fresh air.

  2. Boomer on May 26, 2011 at 4:42 pm

    Hi Peter: An alternative to good coverage at work is taking out loan disability insurance for any large loan or mortgage. It may seem like too much extra cost at first glance, but not having to worry about making payments is a big help if you have an accident, like you did.

  3. Duvan on April 12, 2017 at 12:58 pm

    Thanks for a great comment, Marie. I really enjoy reading your blog!

    What would be your advice for someone who has already retired early and is living off of “investment income”, rather than “earned income”? I am in my mid 40s and hope to achieve that stage next year. I have a privately purchased disability insurance and was recently contemplating if retaining it by paying premiums after I can afford to retire makes sense. When going over the terms, I noticed that the payable benefits are somehow tied to “earned income”. The language is so complex that I cannot be a 100% certain, but it appears that one will not get any benefits unless they have recently “earned income” to show.

    • boomer on April 13, 2017 at 9:54 am

      @Duvan: Disability insurance is intended to replace employment income if you can’t work at your job because of injury or illness. If you are no longer working and living off investment income, you don’t need private disability insurance. Presumably your investment income would continue whether or not you become injured.

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