Do I Need Disability Insurance

It is estimated that approximately 10% of Canada’s population suffer an illness that causes a disability at any given point of time. Statistics Canada also has reported that approximately four million Canadians per year obtain an injury that is serious enough to cause a temporary or permanent disability.

Many individuals feel there is a greater need for disability insurance than there is for life insurance. Every individual has unique circumstances, and proper planning is essential. 

Disability insurance in many cases is confused with critical illness insurance. Both of these types of insurance provide payments in cases involving an illness or disability, however the way payments are paid differ. Disability insurance provides individuals with a monthly income in the event an individual is not able to work as a result of a serious injury or illness. Critical illness provides an insurance payment in a lump-sum tax free amount following the diagnosis of one of the illnesses covered by the critical illness policy. In many cases, disability insurance would provide payments that critical illness insurance would not have supported. 

Individuals that work for large employers including many financial institutions, government agencies, automobile manufacturers, school boards and dozens of others in most cases will have some form of long term disability insurance in place. The type of coverage will differ from employer to employer and in many cases the coverage is somewhat limited. 

Some disability policies include coverage for what is known as “own occupation”, while other policies provide coverage for “any occupation”. Own occupation coverage refers to an individual not being able to work at their regular job, and is viewed as better coverage.

The amount of disability coverage required is based on an individual’s personal circumstances including whether they are married or not, have a mortgage, car loans, children and other expenses. In some cases only 40% coverage may be needed, while in other cases 60% or 70% may be required. In essence, individuals should have coverage that provides for their living expenses in the event of a disability. The amount of disability coverage needed is also based on whether some form of disability coverage also exists. In addition, how much disability coverage is required is based on how the payments are received and whether the benefit is a taxable or non-taxable benefit.

Many disability plans may cap the amount of benefits payable. It is important to also note that disability coverage obtained by an individual and paid for by an individual is generally tax free if payment benefits are made. Most payouts from employer or corporate sponsored plans are taxable.

Accidents and illnesses occur in life and can happen at any time to every person. The risk of disability is real, and on average one in three people will be disable for a period of 90 days or longer, at least once prior to the age of 65. 

Disability insurance from insurance companies in most cases is cheaper than critical illness insurance, however it is different. Individuals should consult with experienced life insurance agents for information on disability insurance. Every individual and family has unique circumstances and proper planning is imperative. Most will find that there is a need for disability insurance coverage to some degree.

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