Disability Insurance

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by Sharyn Hillier, B.A., CHS, Hill Life Financial

Some call it “pay cheque insurance”, but it is otherwise known as Disability Insurance. Complicated? It seems to be, for many. Will you use it? There is a fairly good chance you will.

There are so many different types of disability insurance. Short term, long term, creditor insurance, WSIB, disability plans under group insurance, etc. How can you keep track? Or decide what is the best option for you?

Some people don’t realize that their greatest asset is not their home, their car, the family cottage, or their boat. A person’s greatest asset is themselves, their ability to earn an income and keep earning an income.

The likelihood of having at least one disability that lasts longer than 90 days before you reach age 65 is inversely proportional to your actual age. The older you get, the less likely you will have a disability that takes you away from your work. However, the duration of that disability will grow as you grow older.

For example, if you are currently 35 years old, the probably of a disability before age 65 is about 50%. The duration of that disability will be about 3.5 years. If you are 55 years old, the probably of a disability before age 65 drops to 23%, but the duration rises to about 5 years.

Let me address some common myths about disability insurance. The two main ones involve group insurance and WSIB. Having group insurance at work is a particularly good thing. People’s minds are put at ease by knowing it’s there. Yet many people don’t look at the group benefits booklet or know exactly what they have until it comes time to actually make a claim.

Did you know that group insurance, on average, will only cover you for two years? Look at that statistic again for the 35 year old. The average duration for a disability at that age is 3.5 years. It makes you wonder what will happen after the group insurance runs out.

Also, many group plans have what is known as a NEM, or a non-evidence maximum. The NEM is the maximum amount of benefit that the insurance company will provide to employees, unless they provide medical evidence of good health. Remember, most group plans will pay you 66.7% of your gross monthly insurable earnings. Example, you make $10,000 per month and the NEM is $5,000 per month. On disability, you would only take home the $5,000 and not $6,670 (or 66.7% of your salary), unless you had given medical evidence to the insurance company prior to the claim.

Do you know if your group disability insurance with your employer is taxable income? Or will it come to you tax free? If your employer pays the premiums for the disability insurance, chances are you will be taxed. However, if you pay the premiums, the benefit will be paid to your tax free.

So, while having disability insurance through an employer is an amazing benefit, it may not always cover you entirely when your health fails, or if you have an accident. Looking at an individual plan to cover you for a longer period, or having additional coverage above the non-evidence maximum, might prove to be a good idea.

When it comes to WSIB, many workers think they are covered for everything. The definition of WSIB is a disability resulting in an inability to work due to an occupational accident (that means on the job, not at home), or an occupational disease. It must be sudden and unforeseen.

Only 5% of disabilities happen on the job. That means that 95% of a person’s disability risk is not covered by WSIB. This gives a false sense of security, and many people turn down personal disability insurance on the premise that they have WSIB. Chances are, when a disability occurs, they will not be covered under WSIB.

Education when it comes to disability insurance is an education in peace of mind. Know what you have. Know what your risks are. Ensure that your greatest asset is covered.

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