Do I Need Disability Insurance?
It’s fair to say that your health is the most important asset you can own. Good health is the foundation for a happy and successful personal and professional life. Unfortunately, health is an asset with no guarantees. Bad things can happen to anyone and disability insurance is a tool that provides you and your loved ones protection.
Your health directly effects your ability to earn money. A long-term illness or injury can also dramatically increase your expenses. Lack of money coming in and more going out is not a situation anyone wants to find themselves facing. Your family’s financial plans could be ruined overnight.
It’s estimated that one in three people, on average, will be disabled for 90 days or more at least once before they reach age 65. Considering that a disability can last for months and even years, this is a scary statistic.
While there are some government benefits available, their scope is typically not enough protection to provide an individual with enough income replacement to maintain their current lifestyle.
Disability insurance is your best protection against unforeseen illness or injuries that prevent you from working your usual workload. The insurance can protect you and your family against financial disaster, allowing you to focus on what’s important, your health and recovery.
In a nutshell, most disability programs will payout a percentage of your regular income in the event that you suffer a major injury or are diagnosed with a serious illness that prevents you from working. Each plan is unique and provides different coverage amounts. It’s very unlikely that a plan will provide insurance for all of your earnings. A typical disability insurance plan will provide at least two thirds of your current income. Again, the percentage is based on finding a plan that suits your potential needs along with your current budget for premiums.
So, how do you determine what disability insurance plan is best for you and your family. It’s important to determine how much coverage you and your family would need. You’ll need to analyze your household budget and calculate how much money is needed to maintain a lifestyle that works. Also, research your current insurance and figure out what’s covered. You can receive benefits from more than one source, as long as the total amount does not exceed the total limits of each plan. Most group programs allow for coverage up to an all source maximum of 85% of your net after tax income. Some personal plans can cover to even higher income replacement levels.
It is important to note that typical group coverage and private individual coverage will vary both in rates and in options and versatility. Many group disability programs offer “own occupation” coverage for a specific period, most commonly 24 months. They also use “Total Disability” as a definition meaning you must be totally unable to work in your own occupation to qualify for benefits. Private personal coverage has more flexibility with options such as partial disability and the ability to provide own occupation throughout the term of the policy.
Group premiums tend to increase based on age bands and the average age in a firm. They will cost less for an older employee if the group premium is blended and more for a younger employee. If unblended employees will find their rates increasing typically every 5 years or so. Private coverage tends to be a fixed premium for the term of the coverage.
Another factor is tax on the benefits. Some plans will pay tax-free benefits while others are taxable. It’s important to discuss this with your insurance provider. The general rule of thumb is if an employee is paying their own LTD premiums than the benefit is non taxable but if its unclear you should ask.
Disability insurance comes in two forms; short term disability and long term disability.
Short-term disability insurance typically covers for illness and injury resulting in the inability to work for a six month duration. Some company-run insurance plans do not cover such insurance, and many individuals choose to seek private options. Many firms will not provide STD benefits as government programs such as EI offer a short term benefit for a reduced period for accident and sickness. Those benefits tend to be for lower amounts and have capped limits for weekly indemnity.
Long-term disability insurance will generally kick in once short-term insurance or programs like EI would end, usually at 120 days. It will pay the insured a benefit until they are able to return to work, or until the age of 65. Some plans will include a rehabilitation program, the goal is to help increase the recovery time.
Anytime you choose not to insure something your taking a risk. The goal of all insurance is to lessen this amount of risk. Disability insurance provides protection for you and your family in the event that an illness or injury prevents you from being able to work and earn your typical income.
It’s important to note critical illness coverage and disability coverage are two distinct and different benefits. One pays a lump sum under the occurrence of a listed change of health and the other replaces income if you are unable to work. You can be critically ill and not qualify for disability benefits or disabled and not be critically ill. This amplifies the need to work with a professional to find the right balance of protection for your individual situation.
Our dedicated team of financial advisors will work with you to find a disability insurance package that works for your family’s needs and budget. We’ll go over all your options and will ensure that you have all the information you need to make a strong decision.