Protect your ability to earn an income with Disability Insurance

Brad Ward 13 Dec 2017

Canadians are a kind group of people. We welcome people from many nations who are in trouble and are quick to say we are sorry. We are very charitable to others but are we considerate to ourselves when it comes to protecting our own families in case of long-term disability (LTD)?

We put insurance in place for our homes, our cars and sometimes even for our TVs and computers but do we ever stop to think about protecting our most valuable asset – our ability to earn an income? 

When Canadians are polled on their most important asset, they often say it is their home. Although our homes are a very important to our financial well-being, shouldn’t we also do everything in our power to protect our ability to receive an income? Would you really want to remortgage your house to provide an income stream if something happened to you? 

To help protect your income, make sure you have enough long-term disability insurance in place. Not having sufficient disability insurance in place is one of the main reasons for bankruptcy in our country. 

Did you know that you have a lot greater chance of having a disability or a critical illness than passing away before the age of 65? 

In the case of a couple (man and woman) who are 30 and non-smokers, their combined risk of having a disability before age 65 is 62% and their chance of getting a critical illness is 41%. 

Many 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 shouldn’t you put a priority on protecting your ability to earn a paycheque?

Studies have shown that if a disability lasts longer than 90 days, it typically lasts 5.75 years. Would your employer allow you to be off work for this long? How will you pay your bills?  And if you think you can get coverage after an illness or disability, chances are it is too late.

What is long-term disability insurance?
‚ÄčLong-term disability insurance is an insurance product that pays out in the event you are too injured or ill to work. Long-term disability insurance is priced based on the type of work you do. If your job doesn't involve dangerous or physically demanding tasks, then your cost for your coverage will be lower than someone working in a riskier profession - even if your ages are the same. 

There are three main classes of disability insurance that you can apply for: own occupation, regular occupation, and any occupation. 

If you insure yourself for ‘regular occupation’ up to age 65, then if you cannot perform the tasks you do in your regular job you will receive disability benefits

With ‘any occupation' if you can do any work other than your present work than you will not receive disability benefits. The highest level of coverage is ‘own occupation'; It is usually reserved for people in low-risk professions such as doctors, engineers, and lawyers. 

With this kind of coverage, if you are not able to do the tasks of your specific profession you will receive disability payments. In addition to receiving disability benefits, a person with an ‘own occupation' disability plan could still earn a paycheque if they do something other than their profession.  For example, if a doctor were to lose the use of his hands, he might still be able to teach at a university AND collect his disability benefits! 

Other things to consider when purchasing disability insurance are the length of coverage period and waiting period to start receiving benefits. Some people are comfortable with only have coverage for a two-year period, while others would like to ensure they have a pay cheque until age 65 in case of long-term disability

The length of coverage will influence the cost of the coverage. And if you can wait 90 days, 180 days or longer before you receive disability benefits, the premiums you pay are reduced even more. 

Do I have enough disability insurance already?

Some Canadians have some form of disability insurance through their employer, however, in many cases, this coverage only provides benefits for two years unless you are unable to do any other form of work. 

To determine whether you have enough coverage in place to replace your income you should review your company's health benefit plan. Your HR department or office manager can help you find out your amount of coverage. If you have disability coverage that covers 60% of your pay, you most likely have enough income replacement set up. If you are receiving less because you are taxed on your benefits, you should consider topping up your coverage with a private insurance company. 

Some individuals who have paid off their mortgage and have no kids can probably get by with 50% of their pay or less. To determine the amount of coverage you should have, make a list of your essential expenses for a year, which includes mortgage payments, utilities, transportation, food and other costs. If you are a professional such as a doctor or lawyer earning an above average paycheque, chances are your group disability coverage will not replace 60% of your income. You should top up your coverage with a life insurance company.

If your employer is paying for at least a portion of your group disability coverage at work, you will be taxed on any benefits you receive. If you own your policy through a private insurance company, you will not be taxed on the benefits because you are using after-tax dollars to pay for the coverage.

Every person’s situation is unique. If you have decided to protect your most valuable asset of earning an income, then contact us at to arrange a consultation We will help you determine the type and amount of insurance that best suits your budget.

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