Disability Insurance

Consider what will happen if you have an accident or become sick and are unable to work?  How will you pay for the mortgage or rent?  The groceries, car payments, cable bill etc?  Often, we can manage the flu, a bad cold and take a few days off work.  These are minor issues.  The more difficult situation is when we are off work for several months, or if it is really serious, permanently unable to work.

What Disability Insurance Does: These policies provide money to replace a portion of your income when you become unable to work.  While not replacing your entire income they typically will replace 2/3 of your income and the benefit comes to you tax free.

How are Disability Claims Income Paid Out? When you buy car insurance you can lower your premiums by having a higher deductible.  With Disability Insurance you can lower your premiums by having a longer waiting period before the benefit begins.  Typically the waiting period is 90 days.  This helps the insurance company avoid paying claims for minor ailments.  We find this makes sense to our clients as it is the longer term illnesses that are the most devastating to a family’s financial situation.  The claims are paid out based on what you have selected as the benefit period.  It might be 2 years, 5 years or to age 65.

What if I have Disability Insurance through my company? Many people have a disability insurance component within their group benefit plans at work.  These plans have both advantages and disadvantages.  The advantage is that they are usually inexpensive and paid for from an automatic deduction from your pay cheque.  The disadvantages are that the plans are not guaranteed, they can be cancelled or the premiums increased by the insurance company.  In addition, the benefit period is often limited to 2 years.  This presents a serious problem to those whose illness lasts longer as their income will stop completely in 24 months.  A further concern for senior executives in a benefit plan is that there may be maximum incomes that the group plan will provide.  So while the plan may be adequate for entry level positions in the company it may penalize the higher income earners in the company.  We recommend that you review your benefit package with an advisor and consider supplementing your group plan to create more thorough income protection.

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