Did you know,
according to Statistics Canada,
1 in 6 Canadians will be unable to work
because of a disability before the age of 50?
So in Today’s video,
I’m going to explain to you what disability insurance is,
the different kinds,
and what type of policy you should consider getting.
Hey welcome back,
This is Thomas,
Your Trusted advisor for
retirement, wealth and insurance in Canada.
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Let’s get started!
When you think about disability insurance
most people think about construction workers,
electricians, the lumber industry and
other jobs that are at high risk of injury.
But people in those professions aren’t the
only ones who need to think about disability benefits.
For instance,
some of the most common disability insurance claims
include carpal tunnel, tendinitis, and back pain.
And for long term disability,
the most common claims include cancer
and mental issues like depression and anxiety.
Clearly everyone who earns an income
should be thinking about disability insurance.
Because remember that your greatest asset
is not your house or your car,
but your ability to earn an income.
Okay, first let’s start off with
what disability insurance actually is.
I’m sure you’ve heard the term before,
but you probably never took the time to really
consider how it will help protect you and your family.
Disability insurance is designed to replace a
portion of your income if you are unable to
work through sickness or an injury.
Examples of this can range from anything
like a heart attack, a stroke, or an automobile accident.
A typical disability policy might payout about 67%
of what you would earn in a regular paycheque.
And unlike work insurance where
worker’s compensation you can only make a claim
if you receive an injury on the job.
most of the disability insurance in Canada
will cover you 24/7.
whether you are injured or get sick on or off the job.
There are multiple types of disability insurance.
Let’s start with the ones that your company provides
Now,
there are two general types of disability insurance
in the companies benefit package:
short term and long term.
Short term disability insurance,
as the name suggests,
will generally cover you up between six months
to 2 years if you have an illness or are injured.
Long term disability insurance is if you are off
for a period generally lasts up to age 65,
however it can last longer in some situations.
Usually, people who can qualify for long term
disability insurance are people cannot be
recovered fully and cannot perform their job task.
If you have no idea what your package covers,
be sure to talk to your HR department.
Now how does disability insurance work?
If you become unable to work
due to an injury or an illness,
you will need to file a claim.
After your claim is approved
by your doctor and the insurance carrier,
there is a waiting period which is chosen
at the time you set up your policy.
You are usually given a choice between 30 days,
60, 90 or longer.
The longer you choose to wait
before you get your money,
the lower your premiums.
For most of the companies sponsor plan.
The average waiting period is 90 days.
After this period is fulfilled,
your monthly benefits will begin
and you get your benefit.
Your payments stop when your benefit period ends
so for short term disability.
That’s a 2-year coverage.
And if the situation is not getting any better,
then it will go to long term disability
which covers up to age 65.
Keep in mind that,
it’s doctor’s judgement what’s your recovery time,
not by you.
so let’s say your doctor said
you broken hand will be healed in 6 months.
After the 3 months waiting period,
you will get paid each month for 3 more months.
Now you might be wondering do you have
to pay tax on your disability benefit?
This is an important question because it will
often determine how much money you’ll need.
Generally, you don’t need to pay taxes,
but it depends on how you set up your premium.
If you are employee,
the disability benefit will not trigger any tax implication.
Hence why the plan usually cover up to 67% of your salary.
But if you are self employed or a business owner,
it’s important to setup the premium payment correctly.
As it might able to claim it as a business expense
but it might also trigger tax complication.
So, if you are convinced you need disability insurance,
the next question is how much money
will you need if you become sick or injured.
The answer to this varies.
It will depend largely on your budget,
your obligations, and your expenses.
You have to ask yourself;
do you just want the bare minimum?
Just enough to cover your mortgage,
your utilities and your grocery bill?
Or do you want to pay for your kids tuition,
or keep the lifestyle intact.
It's important to get the right amount of coverage
when you apply for disability insurance.
The insurance company will generally only
insure you for a maximum of two-thirds of
your income when you created the policy.
Also keep in mind, disability insurance is designed
to cover your income so that
your life style doesn’t fall into parts.
There is also something called critical illness insurance
which is similar to disability insurance.
Unlike disability insurance,
critical illness usually provides a one-time,
tax free payment while disability insurance
pays you a monthly benefit.
Remember,
Not everybody recovery costs are the same.
You could end up needing additional nurse care
or even travel expenses—
things disability insurance may not be enough.
Now, many Canadians have disability coverage
through their employers,
and they may think they don’t need anything extra.
But this coverage might not be enough
to cover your expenses.
One of the aspects to look it is how is your income
broken down by your employer and insurer.
Does your insurance just cover your base income
or does it include your bonuses and overtime pay?
In most instances,
your policy will only cover your base pay.
And if you rely on the additional income from overtime
– say you are in the IT industry for example –
you may need to examine your benefit again
or get additional coverage.
Also,
coverage differs greatly from one employer to another,
and if you’re self-employed or
you work for a smaller company,
you may have no coverage at all.
Say you are a realtor.
You are self employed and your paycheque
don’t come in regularly.
You have to drive around for open houses.
So it’s important to have some coverage
in case accidents happen.
Please talk to an insurance professional about
your coverage and don’t make any assumptions.
The worst is when you thought you are covered and
end up needing it but the funds aren’t available.
Now, the most common question I genially get asked
is how much will my insurance premiums be?”
You know if it’s life insurance or critical illness insurance.
The biggest factors to consider are your
age, gender, health, and lifestyle.
But for disability Insurance,
your occupation is the biggest factor.
For example,
a truck driver will have to pay more than a
computer programmer because statically speaking,
truck driver has a higher chance to claim disability.
It’s reasonable to assume that your premiums will be
higher if you are surrounded by heavy machinery
every day than if you have a desk job.
If you are on the fence about
whether to get disability insurance,
consider this:
It’s generally worth it to lock your premiums in at a
lower rate when you are young and in good health.
And again,
another big factor is your occupation
In the insurance world,
all jobs are classified into 4-5 risk classes.
But not all insurance carriers look at risk level the same.
one carrier might consider a chef as a high
risk occupation and another might not as high,
so it’s important to shop around.
And the beauty of disability insurance in canada,
most of them are non cancellable.
Meaning the insurance carrier cannot
just cancel your coverage nor increase price
Taking that all in,
is disability insurance worth paying the premium?
We'll think about it this way.
We buy insurance plans for our cars,
our homes, phones, and even on our investment.
For some reason,
it's hard for us to imagine that we need
to insure our personal income.
We often tend to protect the golden egg
but forget about the golden goose.
If you have any,
any questions about disability insurance.
Feel free to comment below or have a chat with us.
My team and I can provide a
compliment consultation to go over your plan.
Alright,
Thanks for watching.
This is Thomas.
And I will see you in the next video!