Many lack disability insurance

Zoomer | January 1st, 2006

The odds are greater you’ll suffer a disability than die. But many people don’t have proper coverage for those odds.

Disability insurance is designed to provide you with regular income should you become unable to work due to accident or sickness. However, it’s not high on the priority list when it comes to family protection. But it should be, unless you have the personal financial resources to:

  • Support your family while you are disabled
  • Keep up with your savings
  • Pay whatever additional expenses may arise.

Employer provided
Usually, disability insurance provided by an employer comes in two forms:

1. Short-term disability (STD)-may run from the onset of the disability for three to six months, generally at 100 per cent of salary.

If the disability persists, the claimant will then be covered by:

2. Long-term disability (LTD)-this coverage provides less income, often in the range of 60 to 75 per cent of salary. The coverage will run until the claimant is able to return to work, or until age 65.

The insurer decides the maximum amount of coverage, based on your income. The inser will also factor in any benefits that may be payable to you by other disability policies. The company would then agree to provide you with a monthly benefit generally not exceeding about 70 per cent of pre-disability income.

What limitations
You would not be allowed to receive total benefits greater than the pre-disability income. The insurer might even put a cap on how much income it will insure, or the amount of coverage may decrease as income increases. For example, someone with a very high income might only be entitled to 25 per cent coverage of the pre-disability income.

Why these limitations? It’s to ensure that individuals have no incentive to claim disability just to receive benefits. Insurers are also concerned that they not eliminate your incentive to return to work. Therefore, they are not willing to make you financially better off than you were before the disability. Loss of employment will end your coverage, in most cases.

Self-employed type
Self-employed individuals need their own disability insurance coverage. But unfortunately, it can be very expensive. This reflects the relatively high risk that people will be disabled for a time at some point in their working career.

Obviously, the older you are when you apply, the higher the premium will be.

Ask these questions
If you have employer disability insurance or are considering buying a personal policy, you should do some careful research. Here are some of the key questions to ask:

  • When do benefits start after you have been disabled?
  • How much money can you save on your premiums by extending the waiting period?
  • How is disability defined?
  • Does it include your inability to perform you’re your present job, or any job?
  • What is the difference in cost for either?
  • What amount of benefit do you receive?
  • Are the benefits indexed to inflation?
  • How long do the payments last?
  • What kinds of disabilities are excluded?
  • Does you disability change any of your other employee benefits?
  • Are there any limitations/restrictions on the policy that you should be aware of?
  • If you go back to work and then suffer a relapse, what is the waiting period before you can claim benefits again?
  • If you are able to work part-time, can you receive partial benefits?
  • Does the waiting period differ for full benefits?
  • Are there restrictions?
  • Can you increase your coverage at any time?
  • Do you need another medical examination to do so?