Disability insurance protects your income when you’re unable to work due to an unexpected health event.
Chances are, you rely on your income to support your family and maintain your standard of living. If you could not work due to a disability, how would you manage monthly expenses such as rent, utilities, food, and more? Although hard to imagine, becoming disabled is more common than you think. In fact, one in three Canadians will become disabled at least once before age 651. What is more, the average length of disability over 90 days is 5.75 years2. Disability insurance can help protect you and your family from losing income.
What is disability insurance?
If you can’t work due to an eligible illness or accident, personally owned disability insurance provides you with tax-free monthly payments that generally replace between 60% to 85% of your regular income (up to a maximum limit). These payments can be used to cover typical monthly expenses such as car and mortgage payments or extra costs incurred due to the nature of your disability. For a fraction of your income, disability insurance provides you with peace of mind that you’re able to:
- Maintain your standard of living
- Protect your savings from being depleted
- Avoid the sale of assets
- Allow yourself to keep saving for important milestones, including retirement or your children’s education fund
Not all coverage is created equal
There’s no “one size fits all” disability insurance plan. When deciding the best plan for you, it’s essential to carefully review the coverage and cost of each plan against your needs. Things to look out for include coverage exclusions and waiting periods, as well as the cost of the premiums over time and not just the initial cost. For example, some plans start with lower premiums that increase every couple of years, while others have a fixed price for the duration of the contract. It’s also important to examine how insurers define a disability. One plan might consider a disability as being unable to perform the essential duties of your job. At the same time, another could classify it as being unable to work at all, regardless of your occupation. Consulting a licensed insurance professional can help you navigate the various options and find a plan that meets your needs.
What if my employer provides coverage?
While this coverage is always welcome, it often comes with limitations and can leave you under-protected. For instance, your employer would own the policy, and you might have little to no say in the coverage you receive, and they can change or cancel it at any time. Premiums can increase annually as you age; if you were to leave your job or get laid off, coverage would automatically terminate. If your employer pays the premium for your disability coverage, the benefits you receive are taxable as income. This isn’t the case with a personally owned policy.
Why is disability insurance so important?
Your ability to earn an income is arguably one of your greatest assets. The consequences of being unable to work for an extended period could devastate you and your family and derail your financial plans. Let’s look at an example of the amount of money you could lose by becoming disabled at age 30.
| Years disabled | Annual income | Total income lost |
|---|---|---|
| Five years | $50,000 | $250,000 |
| $100,000 | $500,000 | |
| $250,000 | $1,250,000 | |
| Ten years | $50,000 | $500,000 |
| $100,000 | $1,000,000 | |
| $250,000 | $2,500,000 | |
| 20 years | $50,000 | $1,000,000 |
| $100,000 | $2,000,000 | |
| $250,000 | $5,000,000 | |
| 30 years (until 65) | $50,000 | $1,750,000 |
| $100,000 | $3,500,000 | |
| $250,000 | $8,750,000 |
Planning considerations
Disability can strike at any time. Speak to your advisor to ensure you have adequate coverage. They will work with you to help you choose the right policy and coverage level and tailor it to your occupation, income, and lifestyle needs.
1 A guide to disability insurance,” Canadian Life and Health Insurance Association, December 2018.
2 Canadian Institute of Actuaries (CIA) 86-92 Agreement Table & 2012 Society of Actuaries – Individual Disability Experience Committee Table.
source https://rosenbergdri.ca/protecting-your-greatest-asset-with-disability-insurance/
Dri Financial Group 