What if you suddenly lost your income due to an injury
The purpose of disability insurance is to provide income to maintain your lifestyle until you are cleared to return to work. It transfers the financial risk of a severe disability from you to an insurance company. Recent industry statistics from Manulife show the following cumulative risk of suffering a period of disability lasting at least 90 days. If you are looking for the best disability insurance quote, you’ve come to the right place.
At age 40
Disability age 50
At age 60
¹The risk of disability depends on your age, sex, and occupational factors, however, once disability does occur, chances are it will last several years. The average length of a disability lasting over 90 days is about 3 years (Source: Canada Life).
This chart provides a breakdown of the reasons for disability claims when compared to the leading risk of musculoskeletal disability. It is based on the policy count of active claims of individual disability insurance products. It is interesting to note that 30% were from mental disorders and nervous system issues.
“Somatic Conditions” include chronic pain, chronic fatigue and fibromyalgia.
“Circulatory System” includes coronary artery disease, heart attack, stroke and congestive heart failure.
“Miscellaneous” includes digestive disorders, infectious diseases, allergies, and respiratory conditions.
“Nervous System” includes Multiple Sclerosis, Parkinson’s and Alzheimer’s
“Mental Disorders” includes significant depression, bipolar disorder
“Musculoskeletal” includes degenerative disc disease, arthritis, soft tissue damage to the back and joints
Provincial Workers’ Compensation Board would cover only about 8% of these claims, and critical illness insurance would have paid a claim on between 16% and 26% of the claims paid through disability insurance. Adequately protected people can have a claim on both policies for the same period of disability.
| Occupation | Date Disabled | Nature of Disability | Age When Disabled | Total Paid to Date |
|---|---|---|---|---|
| Teacher | 1973 | Quadriplegic | 29 | $208,000 |
| Cabinet Maker | 1987 | Osteoarthritis | 29 | $252,000 |
| Salesman | 1988 | Car accident | 26 | $585,000 |
| Manager | 1989 | Ligament tear | 52 | $66,900 |
| Machine Operator | 1989 | Shoulder injury | 42 | $233,800 |
| Doctor | 1989 | Chronic pain, depression | 34 | $1,458,884 |
| Mechanic | 1991 | Back injury | 55 | $100,000 |
| Farmer | 1997 | Angina | 49 | $156,364 |
| Accountant | 1997 | Depression | 32 | $189,000 |
| Lawyer | 1999 | Multiple sclerosis | 45 | $180,951 |
| Carpenter | 2000 | Chronic fatigue | 53 | $147,000 |
| Anesthetist | 2001 | Cancer | 51 | $900,564 |
| Bricklayer | 2001 | Carpal tunnel syndrome | 48 | $97,610 |
| Technician | 2001 | Electric burn | 31 | $240,129 |
| Business Owner | 2002 | Car accident | 43 | $121,320 |
| Dentist | 2003 | Herniated cervical disc | 55 | $634,088 |
| Podiatrist | 2004 | Essential tremor | 59 | $381,358 |
Statistics used provided by Manulife Financial, December 2008
Disability income insurance basics
We highly recommend that you seek the expert advice of a licensed disability insurance agent before considering a policy, as policy terms and options can vary significantly from policy to policy. We have access to the best disability insurance quotes from top-rated insurance companies in Canada. If you are an independent contractor, self-employed tradesman, or professional and do not have disability insurance coverage, what protects your income?
A severe injury or illness that keeps you from working for an extended period can be financially devastating when you consider that:
- Your current income will cease to exist.
- Your future income will be at risk due to your disability.
- Yet your business or personal expenses may continue.
Disability income insurance policies help protect you, your family and your business by protecting your income from disabling injury or illness.
There are two types of disability policies available:
- Short-term disability: This disability policy protects for a brief period of up to 120 days when employment insurance might not be available. This is only available as part of group insurance, not as an individual product.
- Long-term disability: Available as a standalone solution and comes in a few variances and several design criteria. These are:
-
- Elimination period
- Benefit period
- Injury only, or injury and sickness
- On the job vs. 24 hour
Long Term Disability Plans – Available either as a standalone solution or part of a group plan, Long Term Disability (LTD) comes in a few flavours. The focus here will be on standalone plans. LTD plans offer the following design criteria:
- The elimination period is the number of days before the disability benefit will start to be paid. For most plans, the elimination period will be 30, 60, 90, 180 or 730 days, with the highest cost for the shortest period, e.g. 30 days. There are a few plans where the elimination period can be as short as one day before the benefit begins. It is essential to understand that the first check will arrive approx 15 days after the first month of eligibility. For example, if you are disabled on Feb. 1 and have a 90 day elimination period (the most popular), the insured must disable you for at least 90 days to receive a benefit. So in this example, if you are still disabled on May 1, the benefit period starts, then on Jun. 1, the first benefit cheque will be issued, which you will likely receive by Jun. 15, or approx. 4.5 months after your initial start of disability.
- Benefit period – the duration they will pay a claim once the claim has been approved. Options are 2, 3, 5, 10 or to age 65, with 65 the most popular.
- Injury only, or injury and sickness – the best plans will pay a benefit whether you are disabled from an injury or a sickness, e.g. heart attack. However, some people may not qualify for sickness due to a preexisting condition. For this scenario, injury-only plans are available from a few providers.
- On the job vs. 24 hour – some plans allow you to save money by choosing only to protect you’re being injured while not at work, the rationale being that while on the job, you would be covered by Workers Compensation (WCB). The problem with this is that WCB is notorious for either delaying payment or just not paying at all, so a 24-hour plan is recommended as the best plan.
There is a lot more to long-term disability insurance than is covered here. You will want to speak with one of our expert advisors to understand the many nuances of disability insurance.
Disability policies can replace up to 70 % of the policyholder’s gross income tax-free when the policyholder becomes disabled. Some Canadian disability policies differ in how they define eligibility.
Eligibility for disability insurance plans may be defined as
- A policyholder who can no longer perform the substantial duties of their occupation due to injury or illness is often referred to as “Regular Occupation.”
- Or a policyholder that is unable to perform job duties in any line of work due to injury or illness for which their education, experience and training would qualify them to do, often referred to as “Any Occupation.”
- A policyholder who can no longer perform the particular duties of their occupation, e.g. a surgeon who ruins their hands due to injury or illness, often referred to as “Own Occupation,” is available to professionals such as doctors, specific engineers, lawyers, etc.
There are also many aspects of Canadian disability plans to consider when deciding on a policy.
- Have you been an independent contractor or self-employed for a long or are you just starting?
- Will you accept a 30 day wait period before payment starts (or a 60 day or 90 days)? It can dramatically affect your disability insurance premiums. You need to ask yourself, can I survive for 4.5 months before I receive my first benefit cheque (typical for a 90 day elimination period)?
- How will you be paid if you can still do a part of your job?
- Do you need an added rider on your disability insurance policy to cover business expenses, including loans, lease payments, and RSP contributions?
- Should you consider adding the option to have all your disability insurance premiums returned, less any claims?
- What if your long-term employment plans change; will coverage continue if you change jobs or occupations?
- Some disability insurance policies do an income test at the time of claim, and if your income does not support the benefit, it is reduced accordingly. In contrast, others guarantee to pay out what you purchased as they do the income test when you purchase the policy.
The risk of disability occurred at different ages
Under age 35
Age 35 to 44
Age 45 to 54
Age 55 or older
Self-employed? We got the best disability insurance quotes.
Disability insurance policies differ significantly in what is covered, how long they will pay, and how they define the income on which they do pay. There are too many considerations to provide meaningful instant quotes. Let one of our advisors work through how much of a monthly benefit you need and then help you select the policy that would work best for you and still be within your budget. Ask yourself, would you rather have a job that pays $60,000 per annum (or whatever you do earn) but nothing if you were disabled and could not work or one that paid between $57,000 and $58,000 (96% to 98% of your current income) but if you were disabled it would pay you a tax-free monthly income to age 65. If you do not have disability insurance through your employment, you need to consider whether you are single, particularly married with children.
Be sure to get expert advice when comparing disability insurance plans in Canada. Take a moment and provide us with some basic information, and usually, on the same day, if not the following business day, one of our advisors will provide you with your free and accurate quotes.
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