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Posted: 1 Jul '22

An Overview of Disability Insurance

An Overview of Disability Insurance

Life can be very unpredictable. It only takes a simple turn of events for your financial future and the lifestyle of your loved ones to change from brilliant to uncertain. Developing a disability or suddenly becoming incapacitated due to an illness catches most people by surprise. Luckily, you can plan for these unforeseen events and protect yourself and your loved ones if things turn for the worst. If you are considering purchasing disability insurance, you are about to make the right decision.  But first, you should understand the various options available so you can choose one that will work best for you and your loved ones. Get in touch with us today and let us help you understand better and even guide you through the selection process.  

Disability Insurance: Why You Should Care

Disability insurance is a policy that pays disability benefits as a partial replacement of an income lost due to injury or illness. Disability insurance protects the family when a sudden illness or accident leaves an individual unable to work. Choosing the right disability insurance product is crucial to financially protecting your family and loved ones.  

Below are vital roles that disability insurance plays:

  • It helps you maintain your lifestyle while waiting for a cure or recovering from a disability.
  • It is a source of income during unemployment as you seek a job that accommodates your disability.
  • It becomes a reliable income source if you become disabled and cannot secure a job anymore.  

Types of Disability Insurance

There are two types of disability insurance – short-term and long-term insurance. Both products replace a portion of your income, typically 50% - 80%. The insurance money can cover bills, repay loans, or be put into savings. And while these two products have similar use cases, they are somewhat different. Let’s explore each of them. 

Short-term Disability Insurance 

This insurance policy covers an individual for six months when sick or injured. Short-term disability can be obtained as a mandatory (employer-paid) or voluntary (employee-paid benefit). But since many employers do not offer paid sick leave, these claims are often filed through the disability plan.  

Long-term Disability Insurance (LTD)

Long-term insurance is longer-lasting and could even be permanent in some cases. LTD is often available through an employer, but you could also purchase it as an individual policy. It’s common among business owners and professionals who are concerned about the financial well-being of their families if they become disabled or incapacitated.

When purchased through the employer, this insurance policy applies when you have met specific requirements. For instance, once you have reached the end of short-term disability, have used sick leave and employment insurance benefits. It usually replaces 67 percent of the regular income and provides benefits for up to 2 years. If you cannot return to the job after the two years have elapsed, this insurance benefit may continue until retirement.

Individual long-term disability offers more options and flexibility for policyholders. For instance, you can choose between any-occupation and own-occupation disability insurance. The former pays a benefit if you cannot perform any work at all, even a simple job that’s outside your profession. On the other hand, an own-occupation policy only pays a benefit if you cannot attend to duties relevant to your specialty/profession. There could be other custom plans, so you want to talk with your insurance advisor before picking one. 

Choosing Your Disability Insurance

When choosing a disability insurance policy, there are several factors you would want to consider. First, you should decide whether an individual disability or employer-sponsored group policy is right for you. If you want more autonomy and options when fighting disability denials, an individual disability cover is better. 

You also want to know how your insurance provider defines disability and what that means to your coverage. To be safer, you should ask for further clarification on the contract terms and conditions. Other factors to pay keen attention to include:

  • Portability: Portable insurance policies will cover you anywhere you work, meaning it’s not limited to your current place of work. Most disability insurance purchased through the employer is not portable.
  • Cost of living benefits: Most policies do not include the cost-of-living benefits. When choosing a policy, go for one whose cost-of-living benefits increases on a compounding basis. 
  • Collection time: Not all insurance providers are quick to pay after making a claim. You should choose a company that pays off as early as a month after your disability complaint has been filled.
  • Residential benefits: A provider who offers residential benefits will help you make up your income, i.e., if you can only work partly. Always double-check the definition of residential benefits with your insurance provider to avoid confusion. Similarly, check if there are any restrictions on the residual benefits you can qualify for.

Besides paying attention to the above options, you want to take your time and answer these questions to ensure you choose the right disability insurance: 

  • How does your insurance provider define ‘total disability?
  • Is there a partial or residual disability benefit?
  • When will the benefit start to be paid out?
  • What are the detailed policy benefits?
  • Will the premium stay level, or do they keep increasing? 

How Can a Disability Life Insurance Make a Difference?

Many individuals purchase disability insurance only after struggling to manage conditions brought by an illness or injury. But this shouldn’t be the case. Every individual needs insurance to ensure they are covered every time they have a disability or are sick. Below are various situations when buying disability life insurance sooner can help make a difference: 

Being Diagnosed with a Chronic Condition

Most people think disability insurance is only needed when they have a severe medical condition. The truth is, it’s important to buy insurance while still in good health as you would be covered in case of a health condition. This is especially the case if you are later diagnosed with some chronic condition. When an individual develops severe health conditions such as cancer, diabetes, etc., getting a disability insurance policy becomes much more challenging.

You Have Dependents

If you have aged parents, children, stay-at-home spouse, or any other person who relies on your income, you must purchase disability insurance coverage. Proper coverage will ensure that your entire family or relatives would continue to meet their financial obligations, such as rent and monthly bill payments, even when you stop working.  

You Have Limited or No Emergency Savings

This happens a lot more than most people think. Building an emergency fund that covers 3 to 6 months of expenses can be difficult if you don’t have a lot left after paying your bills. Here, a disability policy can help you secure continuous funds until you are back in the workforce or retirement, depending on the disability status and policy you took.  

When You Have a Debt Obligation

Most professionals and business owners assume they do not need disability insurance when they are already covered under the mortgage insurance policy. The truth is that mortgage disability coverage is very limiting, and if you qualify, it will only cover your mortgage costs. Individual disability coverage will help you meet debt obligations and settle other life bills if you have outstanding debts. 

Disability Insurance: Make the Right Choice 

Taking a disability insurance policy sooner rather than later couldn’t be more important. Speak to a Vistaplan advisor today and let us help you choose the perfect disability insurance policy that meets your needs. 


About the Author - David Motkoski

David Motkosk At the Helm of Vistaplan Financial Group

David is a well-respected insurance advisor with over 30 years of experience helping healthcare professionals, business owners, and their families secure their financial futures. He takes the time to make certain his clients understand the life, disability, and health insurance products they are purchasing, so they can make the right choices for their budgets, plans, and futures. CONNECT WITH ME ON LINKEDIN

Life & Disability Insurance for Alberta Health Care Professionals, Business Owners, and Their Families Since 1983