Disability insurance for professionals

Brad Ward 07 Mar 2018

Do you make big money? Did you ever stop to think what it would be like if you were incapacitated and not able to go to your practice or business? Would you or your family miss the income? These are fundamental questions and not to be taken lightly. You’ve worked very hard to get where you are today and are you willing to risk it all by not having adequate long-term disability insurance in place? A wise person would say – no way!

Why get disability insurance coverage?

If you were fortunate enough to have a money printing machine in your basement pumping out $100,000 per year in cash would you ensure that this machine was always in good working order? I think you most people would say YES! Well if you are honest with yourself … you are that money machine! Shouldn’t you make sure that if something happens to you that your money earning ability is still working? Would you be willing to spend $1,000 per year or more to keep that flow of money coming into your bank account? 
Most people make sure they have life insurance coverage but forget to add the proper amount of disability insurance coverage. If you consider that the average earnings for a 30-year career are $2,008,154, you can see why disability coverage is so essential. 

When you apply for disability insurance, the insurance company will ask more questions and scrutinize your health and history more than if you are applying for life insurance. Before age 65 an individual has a lot higher chance of becoming disabled than dying. If an insurance company takes disability insurance more seriously than life insurance, shouldn’t you?

If you are a professional, chances are your occupation is less risky. And the cost of disability insurance is lower for people who have safer work environments than people who in more dangerous work sites.

Am I covered by disability insurance already through my group plan?

Most group plans provide an insufficient amount of disability coverage, and it is prudent for you to review the coverage you have. Sometimes the group plan will be capped at a certain level of monthly coverage such as $2,500. Typically, the type of coverage is ‘own occupation’ for two years and then the coverage switches to ‘any occupation.’ So, for two years if you cannot do your specific job duties, you will get the full benefit.

Once the ‘own occupation’ period expires if you can work at a call center or any other low skilled position, then your group disability coverage ceases. Furthermore, if your employer is paying for some of the cost of the long-term disability coverage, it will be taxed in your hands so that you will be receiving even less than $2,500 per month. How will you pay your bills if you are receiving only 25% of your original income?

If you are earning $100,000 per year, you may be able to qualify for $5,200 per month or more in tax-free benefit if you purchase your policy privately. You are not taxed on the benefit because you paid for the coverage with after-tax dollars. And with ‘own occupation’ disability coverage, if you are disabled and cannot do your specific job (such as being a dentist or engineer) and you have ‘own occupation’ you could work in another job such as teaching, earn more money and keep the disability income too.

How much would the individual disability insurance cover?

The level of your coverage depends on the income you earn. You are limited in the amount of benefit based upon your provable income. An insurance company will not permit you to apply for more than you are earning. Usually, they will insure you for up to 70% of your present income. Some insurance companies give you the ability to add more coverage if you add a future earning increase option to your policy.

So as your income increases you can purchase more monthly disability coverage. When it comes time to add this extra coverage, you will have to provide proof of income to the insurance provider.

To determine the level of coverage, you need you will have to evaluate the cost of your bills should you cease to work (mortgage, utilities, business expenses, savings, etc.).

Tips for professionals and executives in getting disability coverage

Seek value more than price when it comes to coverage
“you get what you pay for.”
Make sure you understand your disability plan completely
Be wary of group plans
Your disability benefit might be your primary source of income for an extended period so make sure you will receive the proper amount of benefit
Group plans may be cancellable and subject to change
Is your group plan portable if you leave your present employer?
Make sure your disability plan is guaranteed renewable and non-cancelable
The insurance company will not raise rates for you, and your level of coverage will not decrease if it is guaranteed renewable and non-cancelable.
The optimum waiting period is 90 days
The best premium rates are for a 90-day waiting period
Buy from a specialist

Disability insurance is a specialized type of insurance and should be adequately explained by a disability insurance expert.

Tips for self-employed people and those with no income

Self-employed people sometimes reduce their level of income to lower the amount of taxes they pay, but in the process can limit themselves to the amount of disability coverage than can apply for. Insurance companies that provide disability policies can only give someone coverage based upon their provable income so if your income on your T4 is low it would be best to get coverage through a group plan or purchase critical illness insurance which offers a lump sum if you are critically ill. Make sure the lump sum benefit can provide an income to last you at least two years or longer.

In some situations, an occupation of a professional might disqualify them for disability insurance because of the risk of their work. These individuals should also consider disability coverage through a group plan or get critical illness coverage.

First, try to get good long-term disability coverage to protect your income if you can and then add critical illness insurance to help in case of an illness. A disability insurance agent will help you determine what is most important to you. Let us at MyLifePolicy.ca help tailor the right income protection for your specific situation.

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