How much do you know about disability insurance? - Small businessess from 1 to 80 employees outsource your payroll management to us and let us worry about your payroll processing.
RSS Follow Become a Fan

Delivered by FeedBurner

Recent Posts

Tax changes to expect when you’re expecting
2016 Tax Tips for 2015 Filing Year
From Proprietorship to Corporation - When is the Best Time to Incorporate?
Tax Specialists Brief your Clients About CRA Fraud And E-Mail Scams
Bank of Canada cuts rates again

Most Popular Posts

Help your teenager build credit responsibly
Being an Executor of an Estate
Student Line of Credit
Principal Residence Exemption


aliko nutrition store- isotonix
aliko payroll services
canada revenue news and videos
canadian news
Cross border Tax
Disability awareness and Benefits for disabled
estate planning
Home Car Insurance
Income Splitting Strategies in Retirement
kids and money -set your children up for financial success
life insurance
on line safety tips
online safety tips
Real Estate - Investments / Retirement
Retirement planning
Save your money
small business planning
Tax Information for Students
tax news
tax planning
Tech news


January 2016
July 2015
May 2015
April 2015
February 2015
December 2014
November 2014
September 2014
August 2014
July 2014
June 2014
May 2014
April 2014
March 2014
February 2014
January 2014
December 2013
November 2013
October 2013
September 2013
August 2013
July 2013
June 2013

powered by


How much do you know about disability insurance?

How much do you know about disability insurance?
How much do you know about disability insurance?
Written by Peter Merrick
Most Canadians don’t protect themselves against the loss of their earning power. This year one in eight working Canadians will become disabled for more than three months, and half of these individuals will be disabled for more than three years.
When people are asked “what is your most valuable asset?” the usual responses are their homes, cars or investment portfolios. Usually, most people don’t think of what allows them to buy and maintain these material things and pay for food, utilities, the mortgage and other living expenses.
The answer is simple; it is our ability to earn an income. Our personal income allows us to repay debts, accumulate wealth and develop a lifestyle for our families and ourselves. Unless we are independently wealthy and we do not need to work, disability insurance is an essential part of risk management while implementing a comprehensive financial plan for ourselves.
Consider a 35-year-old lawyer earning $120,000 today, who plans to work to age 65. Using the historical average rate of inflation of four per cent for the 20th century, this lawyer will earn $5.7 million over the next 30 years.
A disability insurance policy is a contract between the insured (you) and an insurance company. The monthly income benefits that you buy will only be paid to you based upon the definitions and wording in your contract.
The most important definition in the disability contract is the definition of “disability.” This definition is the heart of your plan. If, as a reasonable person, you cannot easily understand the definition of disability and how/when your disability income will be paid out, then you should not purchase that plan or deal with your current insurance agent. If the definition appears unclear, be aware that an insurance company at the time of claim has the power to define what constitutes a disability through its own interpretation.
Own occupation
“Own occupation” is the most clearly defined coverage and the most expensive to buy. It is usually sold as a rider to the regular coverage of a disability policy. Owning a policy with the ownoccupation definition pays you an income when you are disabled and not able to perform the duties of your chosen occupation. You would be eligible to collect full disability benefits, for example, when you are no longer able to work as a lawyer, even if you decided to work in another occupation, such as a cashier at a fast food restaurant, earning less, the same or more money than you did when you were a practising lawyer.
Regular occupation
Regular occupation is the most common coverage found in privately purchased disability policies today in Canada. You will be paid a benefit when you can no longer work in your chosen profession because of disability or sickness and do not have employment at all. If you choose to work in another profession, the definition of your occupation then changes to that of your new work situation. So if you were a lawyer and can no longer do this type of work but choose to be employed as a cashier at a fast food restaurant, the definition of your regular occupation changes to that of cashier and the insurance policy will no longer pay you a disability income.
Any occupation
This definition is found in most group and employer-sponsored disability policies and is the most misunderstood. This definition gives the insurance company the most leeway to interpret what constitutes a disability and to determine what the insured can or cannot do to earn a living. With the any occupation definition you will only receive a disability income from an insurance company provided you could not work at all in a job that you are “reasonably suited to do by your education, training or experience.
So if you were a lawyer and can no longer perform this type of work, the insurance company will have the power to make the determination if you are qualified to be a cashier at a fast food restaurant.
Even if you choose not to be a cashier, just because it determines that you are qualified to do so, the insurance company can legally deny you your disability income.
Benefit term
Many people have a difficult time deciding how long a benefit period they should buy. The average length of disability is about three years and your options for a disability policy benefit period range from two years to five years, or to age 65.
If you are a young professional and do not have considerable financial assets, a benefit period to age 65 is highly recommended.
Consumer Price Indexing
It is very important to consider purchasing a Consumer Price Indexing rider/coverage when buying a disability policy. An inflation rate of four per cent per year means that $1 today will have the buying power of $0.50 within 18 years. A cost-ofliving adjustment rider is designed to help you keep pace with inflation after your disability has lasted for more than a year.
Future Insurability
This optional rider is designed to protect your future income. This rider is a must for young professionals. It offers the ability to increase your disability coverage, regardless of your health, as your income rises. With the earlier example of our 35-yearold lawyer earning $120,000 today, if his income only increased with inflation, he would have an annual income of $177,000 ten years from now.
By purchasing this option with his original disability policy this lawyer would be able to buy additional coverage without any additional medical underwriting requirements. In essence, if he was diagnosed with a heart condition, as long as he had future insurability on his policy he could buy more coverage and have no fear of being declined by the insurance company.

0 Comments to How much do you know about disability insurance? :

Comments RSS

Add a Comment

Your Name:
Email Address: (Required)
Make your text bigger, bold, italic and more with HTML tags. We'll show you how.
Post Comment