Disability strikes working people far more often than we care to think about.
A 20-year-old man is about three times more likely to be disabled for at least 90 days than he is to die before age 65. A 35-year-old woman is about seven more times likely to face disability than death before age 65.
And the average claim for disabilities that last for more than 90 days is longer than three years. That’s a long time to go without a paycheque!
Disability insurance coverage is critical to the health of your financial situation — but, if you’re like most people, you probably don’t know how your group insurance would work if you become sick or injured.
You should carefully review your group benefits booklet — and, if your group plan comes up short, you should carefully consider an individual plan. To get you started in the right direction, here are 10 things you should find out about your disability insurance.
1. What does your group plan cover? Does it cover all your sources of income such as bonuses and commission? Does it cap the maximum benefits payable below your income level? Is it indexed for inflation?
2. How much does it cost — today and tomorrow? If it’s extremely inexpensive, is that because the coverage is extremely limited? On the other hand, your premiums may increase dramatically over time, depending on the age and health experience of your group.
3. Can the policy be cancelled? Group plans usually aren’t guaranteed.
4. What is the plan’s definition of a disability? Your group plan may have a very restrictive definition of disability.
It may require mandatory participation in a rehab program, it may have limitations and exclusions, especially for mental/nervous disorders or soft tissue damage to your back and neck. It may also have a pre-existing conditions limitation and may not cover you if you can work part-time. The definition of disability and the level of benefits can change at any time.
5. Do I control my group plan? No — your employer and the insurance company do.
6. Is coverage portable? No — a new employer means you must qualify for a new plan.
7. What are the waiting periods? Make sure you find out how long you may have to wait before benefits kick in.
8. What are the benefits periods? Benefits may be capped by total amount or by a limited payment period. As well, most group policies terminate at age 65.
9. Are the benefits taxable? Yes, if the premiums are paid by your employer. When you pay them directly through your employee deductions, using after-tax dollars, the monthly benefits received are tax free.
10. What about mortgage disability insurance offered through a financial institution? Rates can increase and your eligibility for coverage may need to be proven at time of disability, before you can collect any benefits.
Individual policies allow you ‘top-up’ your protection and help preserve your savings. The plan is always yours, regardless of your employment situation. You decide on the terms and the premium amounts. A professional adviser can help define the personalized insurance coverage that is tailored to your unique needs.
J. Kevin Dobbelsteyn is a certified financial planner with Investors Group Financial Services Inc. His column appears every Wednesday.