DISABILITY INSURANCE

    Imagine you had a machine in your basement that printed money. The money that came out of the machine was used to put a roof over your head and food on your Children’s plates. Is this machine something you would want to insure? Just in case the machine broke down you would still be able to provide for the people you care most about. We’ll, that’s exactly what disability insurance is. Disability insurance (or DI for short) protects your ability to provide for your loved ones even if you are not able to work.

    Much has been written about DI but it still remains confusing to many people. Let’s try and demystify DI and break down how it can help protect your income.

    Your Occupation 

    The first factor to consider is your occupation. Not all jobs are created equal. As you can imagine it is a lot harder to protect someone who has a job where the likelihood of becoming disabled is higher. Think of a construction worker who uses heavy machinery. This person will be at more risk than someone working in an office environment.

    This becomes one of the major factors to consider when purchasing disability insurance. It’s always best to look at a couple of insurance companies, depending on your occupation one company might be more competitive than another.

    Amount of Benefits 

    How much of your income do you need to replace?  

    The average DI plan in Canada covers between 70-80% of the insured’s income. For example, if you currently earn $5,000/month you may one insure $4,000 per month.

    This is where plans and costs will vary greatly depending on the company you look at. We recommend you with an advisor who can help you decide the right amount you need.

    How Long Do You Have to Wait?

    Most disability insurance plans purchased in Canada start with a minimum of 30 days before your benefits are paid out. Remember DI is not meant to be an easy way to collect income, but it’s there to protect your loved ones when you need it.

    One of the staples of good financial planning is to have 1-3 months of income saved up. Ideally in a savings account or as a line of credit. If you were to become disabled you would use this savings account until your benefits kicked in. 

    One quick tip, this waiting period could be extended to bring the cost to own DI down. If you have 3 months of income saved you could extend the waiting period to 90 days, this would always make the plan more affordable.

    The Terminology You Need to Know 

    When purchasing disability insurance, the definition of disabled becomes paramount. You’ll want to understand what the insurance company deems to be disabled. There are two definitions insurance companies use.
    • Own occupation 
    • Any occupation 

    Own Occupation Rider 

    The investment one makes in their occupation is not only financial but also the years of training and experience they gain. Several people think that although they have the experience that will get them to work even after disability but will decrease the pay. The own occupation rider allows the insured person to work in another occupation while they are totally disabled in their own occupation and continue to receive disability benefits.

    Any Occupation 

    Is when the person can do any work regardless of their education, training, and experience. It’s important to understand that each company may have a slightly different definition. Speak to advisors before applying for any coverage.