Disability Insurance

How would you manage if you became partially or permanently disabled due to sickness or an accident? If you have disability insurance, you'll continue to receive an income even if you can no longer work.

Disability insurance is one of the last things most of us like to think about—until the unthinkable happens. If you work (and are not financially secure without working), you need income protection. The younger you are, the higher your need.

Think about the following scenarios:

  • If you're single and you can't work, who will support you?
  • Single with children? Disability insurance is even more important.
  • Married or common law? How will the two of you manage if one can't work? Would you be able to meet your basic living expenses? If not, ensure both income earners have coverage.

Your chance of being disabled for three months or longer is actually higher than your chance of dying before you retire.

Human Life Value Calculator

One of your most important assets is your ability to earn a paycheck. This calculator is designed to help you understand today's value of your future earning. Use this calculator to determine your economic value for your loved ones... your Human Life Value.

Information and interactive calculators are made available to you only as self-help tools for your independent use and are not intended to provide investment or tax advice. We cannot and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.

Get to Know Your Group Disability Policy

Many employers provide coverage as an employment benefit. Coverage typically consists of:

  • Sick leave: Employer coverage at full pay for a set number of days or weeks.
  • Short Term Disability (STD): Commences after your sick leave ends; you receive partial to full salary. Coverage varies by employer from none, to 15, 26 or 52 weeks.
  • Long Term Disability (LTD): Commences after your STD ends; benefits are a percentage of your base salary, subject to a maximum monthly amount. The benefits sometimes continue for as long as the disability lasts, to age 65, but in many cases the benefits continue only for two years (while you’re unable to perform the duties of your regular occupation). At this time a review of your situation may be conducted to see if the coverage will be extended.

Disabilities due to the following causes are usually excluded from eligibility:

  • Intentionally self-inflicted injuries
  • War, riot or civil commotion
  • Committing, attempting or provoking a criminal offence

If the employer pays the premium, or part of the premium, any payments you receive while disabled are taxable. If you pay the premium, the disability payments are tax-free. Keep in mind that plans pay out in a pre-determined order. Benefits received from CPP/QPP or Workers' Compensation will reduce the amount your employer’s plan pays out. An employee with group coverage and a private individual policy will only receive, at most, a top-up from the personal policy.

Long-Term Disability: Protection Not Prosperity

Long-term disability is about protection, not prosperity. It is not intended to keep you at your current standard of living, but to allow you to survive with a disability or illness. Keep the following in mind:

  • After six months and up to 24 months, you could receive 1/2 to 2/3 of your income if you’re unable to perform your regular job.
  • After 24 months, this percentage can go down, depending on the group policy. Usually, the definition of disability also changes. Your payments may be based not only on your inability to perform your regular job but also any other job for which you are reasonably well qualified.

Is Your Group Coverage Enough? Calculate Your Disability Needs

Before opting to take the cheapest level of coverage, do your homework. The elimination period, benefit period, definition of disability, indexing, health risks and the amount of coverage all affect the cost of your disability insurance. The expression, “Penny wise, pound foolish” applies.

Calculate your income needs and personal situation in the event of disability. Will your company coverage be sufficient? Review the basic and optional levels of coverage available. Do you need to increase it?

Other Considerations

Does your company plan still leave you exposed? Consider:

  • How long is the elimination period, until payments start?
  • Will you still be working when the benefit period ends?
  • What is the chance you’ll become uninsurable (if you leave work, replacement coverage may be difficult to obtain)?

If your company plan is not providing coverage that you are comfortable with, you may want to augment it with some coverage of your own. An insurance broker may be able to provide helpful guidance on this.