What is your biggest asset?
Is it your house?
Your RRSPs
Your rental property?
Your stocks?
Answer: It's you, your ability to earn an income.
Let's assume your income is $50,000 and you are 25 years old (nice to be young!) and assume you will get an annual pay increase of 3 per cent every year. In 40 years (age 65) you will have earned 3.8 million dollars!
You buy auto insurance in case you are in an accident. You buy fire insurance for your house in case it burns down. Shouldn't you insure something that is worth much more?
How much can I get?
Most disability insurance companies put a limit on how much you can buy. That range is between 40 per cent and 66 per cent of your gross taxable income.
How fast does it pay out?
The second question is: how fast does the policy pay? This is called the waiting period or elimination period. This may be 30, 60 or 90 days before the first paycheque comes from the insurance company after the "event" has happened (e.g. sickness or injury). The option of waiting 90 days before the first disability insurance cheque will be cheaper than the option of waiting 30 days.
Benefit Period
You have some choices here: 2 years, 5 years, or up to age 65 before the insurance company stops paying.
So, the building blocks for disability insurance HOW MUCH, HOW FAST, and HOW LONG?
Definition
The next step in looking at a disability policy is the Definition of Disability. Some policies pay if you can not do your job. This is called own occupation. Other policies pay you if you can not work at any occupation. This is called any occupation.
The next step is whether a disability policy will pay if you are totally disabled. Some will pay if you if you are partially disabled. A classic example of this was one of my clients, who bought a disability policy from an agent who did not offer a partial disability option. Years later my client had problems walking or standing on his feet because of some circulatory problem in his left leg, and had to withdrawal over $30,000 from his RRSPs. This will cost him over the years over $100,000 because of taxes and loss of compounding over many years! Needless to say a partial disability option is worth getting!
Sometimes a partial disability never becomes a total disability, so I can not stress this enough: you can get a partial disability, so get the coverage!
Inflation
Another important feature is a disability insurance policy that will go up with inflation. Back in the early 1980's you could mail a letter for under twenty cents! If you are on disability for a few years, this will be vital!
A disability policy will spell out that you must be sick or injured and be under a physician's care an insurance company wants proof that you are disabled. You must be unable to work for 20 per cent of loss of time or duties.
Business Use
Overhead insurance, for key personnel (like a top sales person or manager). Many employers provide long term disability or LTD to age 65, but some only provide coverage for only 2 or 5 years to save money! Please review your benefit handbook!
Also, many companies have short term disability (group) for only 3-6 months!
Hoping to hear from you soon,
Brian Poncelet, CFP
(905) 338-7689 (24hrs)
brian@Disability Insurance Quotes
***Owing to limited resources and time commitment, only people with family incomes of $110,000 or more
should call. (OR $60,000 in RRSPs)