Disability insurance
Disability insurance is the type of insurance that provides you with financial security when you are unable to work and earn an income due to an accident or illness. Disability insurance gives you a percentage of your monthly income during the period of disability. Disability Insurance Plans differ on how soon you would collect the disability benefits and for how long you are to be paid. They also vary depending on the degree of your disability to perform the duties of your profession, or any other job in your profession, and any job at any profession at all whatsoever.
Disability Insurance in Canada
“In Canada, The Disability Insurance (DI) Plan was designed in 1970 by Public Service management and bargaining agent representatives, in consultation with the National Joint Council (NJC) of the Public Service of Canada, to provide income protection arrangements for Public Service employees.” (Disability insurance plan. 1998).
The difference between Life & Disability Insurances
In the case of life insurance, the benefits are usually paid and settled in one single payment. And once life insurance is claimed and the payment is made, the policy ceases to exist. On the contrary, suppose you get injured in an accident. You claim your disability insurance. You would get the benefits as a regular monthly payment, as long as you are disabled. And then, if you recover from your disability and you can restart your job, the policy does not end. The benefits could be payable until you start getting your previous income. The policy remains open and can be claimed again for subsequent disabilities or for the recurrence of a prior disability.
Why would you buy Disability Insurance?
Most people understand the need for Life Insurance, and they go ahead get their lives covered so that in the case of death, their family will be sufficiently provided for. But most people do not think the same in the case of disability insurance. The fact is that they will go for Disability Insurance before they, but Life Insurance when they understand that in a given year, the odds are far greater that a person will become disabled than that he or she will die.
“It is estimated that up to the age of 37, there is an eight times greater chance of suffering a disability of at least 90 days than the chances of death. Disability is more probable than death at any given age.” (What is Disability Insurance? 2008).
Disability insurance is designed to protect your income. It is designed to keep your income coming irrespective of whether you are able to work or not.
Points to note while buying Disability Insurance
- It is important to consider when you are purchasing Disability Insurance. If you buy in your first year in your job, it will be difficult to indicate the level of income that you have the potential to earn. That means that you will only qualify for a low amount per month. Even if you claim a higher income in the application, sometimes the insurance company would do an income test at the time of claim, and they only pay according to what they find. So if you insure for a higher income than what you earn right now, then make sure that the company does not do an income test at the time of claim.
- It is good to ensure that the policy does not have a condition on leaving your current job. The coverage should continue even if you change jobs in the future, and the monthly benefit coverage is firmly mentioned on the document when you purchase the policy. It is better to inform the insurance company upfront of your long-term career plans.
- There is a payment mode option in most of the Disability Plans. You could choose whether you want to wait 30, 60, or 90 days before payments start. The rule to follow here is the lower the period, the higher the premium. It’s a difficult decision to make as sometimes a long 90 days period could prove to be tough to overcome without any income. If you have some emergency cash saved for these 90 days, then you can choose this and enjoy the lower premiums.
- If you are a businessman, then there are some more benefits you could derive from your disability insurance plan because some plans will provide cover to pay you debts and mortgages when you make a claim. This rider can be added regardless of your income level. (Disability Insurance a brief overview. 2008).
Disability Insurance, in a nutshell, provides an income if you become sick or injured. The income that you get this way is completely tax-free too. It is ideal for anyone who earns an income and does not have disability insurance through their employer.
There are generally two types of Disability Insurance plans, they are
- Group Disability Plans: These are plans sponsored by business houses and organizations for their employees and other workers. The obvious drawback of this type of plan is that when you leave that company, your insurance cancels automatically. You are only covered as long as you remain in the group. The other problem with group policies is that most sponsor companies go for just basic cover where several disability conditions may not be included in the plan, and the rules to claim will be very strict.
- Individual Disability Plans: These are plans that every person can choose to buy from any of the Insurance Companies operating in Canada. Such as Sun Life, Canada-Life Insurance, etc. There are brokers representing these companies who would be happy to explain the various features of their plans.
The following are key points to focus on when looking for a disability income insurance policy
- Own Occupation Definition of Disability for Income Protection: There are two very different definitions of disability used in disability policies. The first definition defines a disability as a condition that prevents you from performing the major duties of your occupation. One top-rated disability insurance company in Canada summarizes their definition of disability as: “Pays benefits if you are unable to perform the material and substantial duties of your own occupation due to sickness or injury…even if you are able to do some other kind of work.” The other and less favorable definition of disability states that you are disabled if you can’t work at any gainful occupation. This kind of policy may also have a residual benefit that says if your income goes down, the insurance company will pay a partial benefit. One of the most important features for a professional or executive is the own-occupation definition.
- A policy with the right definition of residual (partial) benefits and return to work benefits: There are important differences to consider. We recommend that you get an occupation definition of disability and an income definition of recovery and residual.. Financial Strength of the Insurance Company. This could have been listed as the first point since the stability, and financial strength of the insurance company are primary factors to consider.
“It may be hard to imagine becoming disabled… but it’s easy to picture the consequences.
There’s no way to predict who will become disabled during their 40 or so working years. Without an income, most people’s savings are rapidly depleted as they struggle to maintain the household and meet expenses. Many begin to suffer real financial need, often with no end in sight as the disability lingers on.” (The Online Source for Disability Insurance. 2006).
Works cited
Disability insurance plan. Human resources. Canada. 1998. Web.
What is Disability Insurance? Canada Life Financial Corporation. 2008. Web.
Disability Insurance a brief overview. Insurance Direct Canada. 2008. Web.
The Online Source for Disability Insurance. Protect Your Income.Com. 2006. Web.