Should I get disability insurance?

BY: ANDREW STEWART

Health insurance will pay medical bills. But if you’re sick or can’t work, who’s going to pay other bills? Here’s what you need to know about disability insurance.

Today’s topic is about disability insurance; specifically, whether short-term or long-term disability insurance is worth the money.

Understanding disability insurance

If you get hurt or sick, hopefully, you’ve got health insurance that’s going to pay your medical bills. But what’s going to pay your other bills? Who’s going to pay your mortgage if you can’t work for months? Who’s going to pay for groceries and other expenses?

That’s what disability insurance does. It provides a monthly cash payment to you if you are unable to work because of illness or injury. The payments are tax-free if you pay the premiums yourself. If your employer covers the premium cost, any payments you receive are taxable.

Types of disability insurance

There are two types of disability insurance: short-term disability and long-term disability. Short-term disability coverage typically provides benefits for up to six months while you’re sick or injured. If your employer has a short-term disability plan, your claim must be made through your disability plan. Employers aren’t required to provide paid sick leave and each employer is different. If you don’t have short-term disability coverage and your employer does not offer one, you may be eligible for Employment Insurance (EI) sickness benefits.

Long-term disability insurance benefits generally begin when short-term disability ends. Most long-term disability plans will replace 60% to 70% of your normal income. Each disability plan is different. Some may provide disability benefits for up to two years if you’re unable to return to the job you had before becoming disabled. After two years, you may continue to receive benefits only if you’re unable to work at any job.

What about personal disability plans?

Since you likely rely on your income to maintain your lifestyle, a temporary or permanent loss of income could be financially devastating. Think about this; your chances of having a disability are higher than you might think. According to Statistics Canada, about 3.8 million people, or 13.7% of Canadians aged fifteen and older, reported being limited in their daily activities because of a disability. Workplace coverage may not be enough, group disability plans can be more restrictive in terms of the percentage of income they replace and the definition of disability. You may want to supplement it with an individual disability policy that tops up your workplace coverage or provides the coverage you need if the definition of disability is too limited.

Any occupation vs regular or own occupation

The definition of “any occupation” plan means you’ll receive disability benefits only if you’re unable to work at all. This means your illness or injury prevents you performing the duties of any job for which you’re reasonably suited. You don’t qualify for benefits if you can work in a different job from the one you had before your disability, based on your training, experience, and education. For example, under an any occupation policy, a surgeon who injured their hands would not receive benefits if they could still work as a doctor in the medical field, but not as a surgeon.

The definition of “regular or own occupation” plan means you’ll receive benefits if you’re unable to perform the main duties of the job you had at the time the disability started. You’ll still receive benefits even if you can work in a different job from the one you had before your disability, based on your training, experience, and education. Returning to the example of the surgeon, under the own-occupation, they would continue to receive benefits until they could return to practicing surgery again.

What to ask when buying disability insurance

How the plan defines disability

Are there any exclusions

Are there any pre-existing condition clauses in the plan that you should be aware of

Do you still need to make premium payments while living with a disability

The amount of money you’ll get each month

Are the benefits taxable

Will benefits be adjusted for inflation

How long you need to wait before starting to receive benefits

Does the plan include partial disability benefits

Can you increase your coverage without a medical exam