What happens to your income when you can't work?
Replace your lost income with disability insurance
A better name is Income Replacement Insurance but many say "Disability Insurance" or "Long Term Disability (LTD) Insurance". Either way, the benefits help replace your income if you are unable to work due to an illness or injury.
The Leading Causes of Disability
RBC paid $445,000,000 in disability claims in 2014. The top five causes of disability are:
- 31% mental disorders: depressive disorders, substance abuse, Alzheimer's disease and other dementia
- 16% cancers: lung, colon, breast, etc
- 12% cardiovascular diseases: diseases of the heart
- 8% injuries: traffic accidents, falls, etc
- 5% musculoskeletal: arthritis
Sources and references:
- Disability: A Canadian Reality (PDF)
- Disability claim facts (PDF)
- Canadians off work face a perfect storm (PDF)
- Disability won't happen to me (PDF)
- Disability risk and severity calculator
- Disability Awareness microsite
- Sample contract for Professional Series (PDF): worth reviewing since this is what you're getting
How Long Do Disabilities Last?
Of the people who have been disabled for 90 days, the average length of disability is four years (source: Top reasons for disability leave | BenefitsPro, May 2015). Other data suggests two or three years. The real question isn't which source is more accurate.
The real question is how long will your disability last? No one knows. That's a reason to get insurance.
What's Your Risk?
This RBC calculator estimates your risk of disability and the income which could be lost. Manulife has a simpler What's Your Risk? calculator which also shows your risk of a getting a critical illness or dying before 65. The Council for Disability Awareness has a Personal Disability Quotient calculator.
Spoiler: Your risk of disability is much higher than your risk of dying during your working years. Maybe that's a reason to protect yourself?
Is Your Group Long Term Disability (LTD) Enough?
Disability coverage from your employer usually has limitations to save your employer money and reduce the insurance company's risk. Get a copy of your employee benefits booklet and review the section for Long Term Disability. You'll likely find:
- a dollar cap on benefits, which hurts high income earners
- reduced benefits after 24 months if you're able to do another job
- lots of exclusions
- loss of benefits if you leave the company voluntarily or involuntarily
With suitable personal disability insurance, you own the contract. Your coverage continues if you leave your employer. Your premiums are guaranteed (and you get discounts for having group LTD). There are options to receive benefits if you can't do your own job even if you do another job.
Even if you're sure that you'll stay with your current employer until you retire, topping up your group LTD with personal disability insurance provides valuable benefits.
What About Disability Insurance From An Association?
You may be offered disability insurance from a professional association or another group to which you belong. Before buying or renewing, understand what you're getting (and giving up).
Here are questions to ask:
- Can the premiums be changed without a maximum limit?
- Can the benefits and definitions be changed?
- Can the plan be terminated by your association?
- Do you lose your coverage if you stop paying membership fees?
- Does the insurer compete in the personal disability market?
- Does the coverage continue if you work beyond age 65?
You'll likely find that personal disability insurance has stronger definitions, fully guaranteed premiums and more flexibility. Plus, you own the contract.
Do You Qualify?
You can't get disability insurance just because you want coverage. Your eligibility depends on:
- What you do: your job duties (not your title) lead to your occupational class (4A is best)
- How much you earn: leads to the maximum monthly benefit permitted
- How healthy you are: leads to possible ratings, exclusions and rejections (declines)
There are other criteria. We present you in an accurate and favourable way to the underwriter who makes the ultimate decision.