The turns in life are very unpredictable and full of uncertainties. While, not fully possible, it always helps to be prepared for any unexpected challenge life may throw at us. Most of us plan for a future in which we are healthy and brimming with life. A lucky few manage to live a full life without a disability hindering them from achieving their full potential. A disability is often unexpected and could be a result of a sudden incident, illness, injury or a medical condition that has degenerated progressively.
An ironic fact is that most people feel the need to subscribe to a life insurance plan but shy away from a disability plan. Most of us do not feel the need to purchase a disability insurance plan owing to the optimistic nature of humans, which makes us assume that we may not suffer from disability in the future. Unfortunately, life is a master at the art of throwing unexpected turns in the paths of our journey. To our dismay, a disability puts a full stop to our earning ability but does not put an end to all the monthly bills we have already committed to!
It is, therefore, a prudent move to be prepared for any uncertainty and subscribe to a disability insurance plan.
Where can I purchase a disability insurance plan?
Insurance coverage for disability is available through both individual and group plans. There are special purpose plans like creditors insurance, mortgage protection, auto insurance plans, critical illness plans and government plans for disability coverage. The good part of such coverage is that it replaces anywhere between 60 and 85% of the income which you would have earned in a normal course of time.
Let us take a look at the different types of disability insurance coverage available in the Canadian market:
Individual plans are touted to be the best as they are tax-free and offer you flexible and customized coverage. Within the category of individual disability coverage plans, we have non-cancellable plans, guaranteed renewable plans, and commercial plans.
The non-cancellable plan, as its name implies, cannot be cancelled and is guaranteed to be renewed. It also offers protection against a price increase during the period of the contract. A guaranteed Renewable plan has to be mandatorily renewed by the insurance provider, and a price rise, if any, has to be for a class or category and not for individual subscribers. A commercial plan gives the insurance provider the option of refusing to renew the plan once its initial term is over or altering the prices by charging you more based on your previous insurance claims.
Group Insurance Plans usually include both short-term and long-term disability protection. A Group plan is typically done through your present employer and includes coverage for three different types of disabilities. A short sick leave, which could last anywhere between a few weeks to a few months, may allow you the benefit of a fully paid leave at no additional costs. Once you run out of sick leave, short-term disability plans kick in and allow for a certain percentage of normal earnings to be paid for a specific period like 15 weeks, 26 weeks or even 52 weeks. Some employers might completely skip this option and prefer Employment Insurance disability benefits.
If your disability is severe and you don’t seem to recover even after 52 weeks, long-term disability coverage starts taking effect. Though such plans aim at replacing a major portion of your income, there is a cap of a maximum amount which cannot be exceeded. Hence, if you belong to a high-income group, long-term disability coverage may not be able to do justice to replace a significant portion of your income.
Long-term disability benefits usually last up to two years or even more, based on the severity of your disability. Another testament to human optimism is the fact that most plans include provisions for rehabilitation assistance by participation in programs that help you recover and come back to leading a normal life.
Suppose you are a self-employed person or running a business in a partnership. In that case, you can still be associated with your area of business fraternity, for example, a university alum group or a Chamber of Commerce and subscribe to an Association Insurance plan.
Special purpose plans are designed to bail us out in the event of an unforeseen disability. For example, an auto insurance plan can help you get income benefits if there is an injury due to a traffic accident. A creditor’s insurance helps you insure your loan payments for a specified period. If there is a loss of a limb, hearing ability or the ability to see, a dismemberment coverage ensures you get a lump sum amount.
Critical illness coverage will mostly cover illnesses such as cancer, heart attack, coma, paralysis, etc and offers a one-time lump sum amount in the event of being diagnosed as a critically ill person. A long-term care plan allows for both basic and comprehensive coverage if one needs to be given special medical care at home or a medical facility for a long period.
Apart from this, there are other provisions for travel insurance, veterans’ benefits, and foreign coverage. The government also offers disability benefits through workers’ compensation boards and employment insurance.
Now that we know about the different kinds of disability plans available let us take a look at the quantum of insurance needed and the factors that affect it:
The answer to this is quite simple- it depends on your current lifestyle, your overall health, the family and financial responsibilities you have, your current assets and liabilities, including your savings and your employability. Many online calculators allow you to enter information pertaining to the parameters, as mentioned earlier, and get a fair idea of how much coverage you should opt for.
How does one apply for a disability coverage plan in Canada?
If you are employed, your employer usually automatically enrols you for group coverage. You are still free to select your coverage despite being a part of a group coverage. Most plans will require you to undergo a detailed evaluation before your application is accepted/ rejected.
The process of filing a disability claim in Canada:
Prompt filing within a certain period of being disabled is encouraged and advised as specified in the policy you have subscribed to. This can also be done through a relative or an advisor. Suppose you think that the insurance company rejected your claim for a reason that is not justified. In that case, you can appeal to the OmbudService for Life and Health Insurance or to the insurance company itself if there is an appeal mechanism in place.
While it is a good thing to be optimistic about the future and health prospects, it is also advisable to be prepared for any uncertain event that might disrupt our daily life. A disability not only jeopardizes our earning potential but also disturbs the family and dependents who rely on our income. Apart from the mental trauma of a severe disability and loss of income, the possibility of being driven to bankruptcy is quite scary.
Q. How much of my income is replaced in the event of me becoming a disabled person?
Most disability plans aim to replace at least 70% of your income.
Q. On an average, what portion of my salary does disability insurance cost?
Anywhere between 1 to 9% of your salary.