Disability Insurance

Disability Insurance – Should you look into it? What’s THE most important thing to know?

We won’t cover all the details on Disability here because it gets quite complicated instead, we are going to go through a few basics and arm you with 8 key questions to ask your advisor.

Essentially Disability insurance pays out a monthly amount of money should you become disabled and can no longer work.  Whenever we refer to the coverage amount with Disability Insurance, we are referring to the monthly benefit that would be paid should you become disabled.  It is either designed to replace a portion of your income or to pay a portion or all of your debt payments like your mortgage, car loan or credit card payments.

Disability insurance tends to be more expensive than other types of coverages.  Many employers will provide Long Term Disability coverage that is half, two thirds to three quarters of the employee’s regular salary.  So generally, if you get disability insurance through work that is usually good enough (note that your situation may be different and may require some additional thought here).  If you can’t get disability coverage through work, keep reading!  

If you are a business owner, self-employed, can’t get disability coverage through work or an owner-operator you should carefully consider disability insurance.  Also, if you have a highly specialized profession that requires special physical skills like a surgeon then you should also consider getting disability insurance.  After all, if you become disabled, the income your family needs likely won’t come from anywhere else.

Disability Insurance

The biggest decision you need to make when it comes to Disability insurance: Get an Advisor who specializes in Disability Insurance!  This is not my area of expertise, so when we see someone who should consider getting disability insurance, we refer them to an advisor who specializes and has developed expertise in this field for two reasons:

#1 Disability insurance is complex and you need someone who can design a policy that won’t unintentionally limit your benefits should you need them (e.g. some disability insurance policies will reduce your coverage amount if you receive WCB benefits, this is called coordination of benefits and needs to be understood very carefully)

#2 Insurance agents who specialize in disability insurance tend to have contracts in place with the best disability insurance providers on the market and are well versed in those policies.  Even though you might be dealing with an independent insurance advisor, it doesn’t mean that that person has a contract in place or access to every single insurance company in the market.

Now here are some key questions you need to get answers to for Disability Insurance:

  • What monthly coverage amount should you get? What coverage do you qualify for?
  • Should your coverage be income or debt payment based? If it is income based how does the insurance company want you to demonstrate your income?
  • What elimination periods are available, and which should you choose? (elimination period is the duration from the time you would be disabled until the time you start receiving benefits, the most common elimination periods are 14, 30, 60 or 90 days, generally, the longer the elimination period the cheaper the premiums will be)
  • How long will the disability coverage last? 1 year, 2 years or until age 65?
  • How does the disability benefit “coordinate” with other disability benefits like WCB?
  • Could your disability benefit be cut off if during your disablement you would become eligible for doing another job?
  • How would you be covered if you had a disability that would reoccur?
  • Would the benefit cover you if your disability arose due to an accident or a sickness or either?