Did you know...
The probability of disability at some point in a person's life in Canada, is significantly higher than the probability of premature death.
For example, in 1984, almost half of the mortgage foreclosures in Canada were attributed to disability, while only 3% resulted from death. In fact 1 in every 3 Canadians are disabled for a period of just under one year during our working lifetimes.
We are more likely to be disabled because of an illness than most people think.
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Disability Insurance
While many Canadians are concerned about their life and other insurance requirements, many of these same people ignore the need for disability insurance when, in reality, disability can result in the same or even greater financial burden than death. If you become disabled, not only do you lose the ability to earn income, but your household must still provide for your continuing care.
Disability insurance is intended to replace a percentage of your earned income in the event that an unforeseen accident or illness prevents you from pursuing your livelihood.
It is available from three principle sources:
- government programs such as the Canada Pension Plan and Employment Insurance, where coverage is limited in terms of benefits;
- individual contracts purchased directly from an Insurance Company, Agent or Broker; and,
- employers and or association group benefit plans.
The majority of Canadians who actually have disability insurance acquire it through their employer's group benefit plan.
Rates & Underwriting Factors
An applicant's age, income, occupation, present and pre-existing medical conditions are taken into consideration by insurers when calculating the applicable rates. A person's smoking status is considered for individual policies only at this time.
Needs Analysis & Contracts
When you purchase life insurance there are virtually no limits, within reason, on the amount of coverage you can buy. However, your available disability coverage is more closely linked with your actual income.
The principle of insurable interest comes into play, and it is the loss that you would sustain in the event of disability. The usual percentages paid by an individual and or group disability policy range from 60% to 67% of gross earnings. If however you pay your premium with pre-tax money or your employer pays any portion of your disability premium, your disability insurance income payments will be taxable as income. Conversely, if you pay your premiums with after-tax income your disability income will be tax-free.
You can if you wish, acquire disability coverage for a benefit which is based on an income amount which is less than your actual after-tax earnings. In other words, it can be tailored to provide the required coverage based on the amount of premium you can afford.
Total protection from disability is very expensive because of the high probabilities of disability and the high costs involved in replacing your earned income. The only way insurance companies can offer insurance at a reasonable cost is to place limitations on the benefits and restrictions on the conditions that are insured.
Ideal coverage would provide you with full income protection, until retirement age, from any disability, arising from illness or injury that would prevent you from performing your own occupation/profession. However, many policies are less than ideal, and you should beware of some of the more common restrictions.
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