Not being able to earn an income is a frightening thought, especially when you have bills to pay. Dipping into your savings to cover expenses can impact your retirement plans and prevent you from reaching other goals, like buying a house, paying for your child's education, or taking that vacation you've been dreaming about. That's why disability insurance is an important component of a SMART financial plan.

According to Advocis, a third of all Canadians now aged 35 will be unable to work for at least six months before reaching age 65. This means there is a chance that you will be unable to earn an income at some point in your career.

Understanding disability insurance

Disability insurance replaces a percentage of your regular income if you are injured or ill and unable to work. You will receive a monthly income payment directly from the insurer for the length of the benefit duration period, or until you are able to work full time, whichever comes first.

Short-term disability, which is common with employer group benefit plans, usually has a benefit duration period of only 10 to 26 weeks. Long-term disability benefit duration periods are usually 2 years, 5 years, 10 years, or until age 65.

Individual disability insurance policies are usually obtained separately from any employer group benefits. The underwriting happens upfront, and you and your insurance agent will go through an application process. Disability coverage through employers is usually under a 'group' policy, where individual factors like your smoking status, age, and health, won't impact your coverage.

Own occupation versus any occupation

The term 'own occupation' means that if you cannot perform duties of your own regular occupation, you are considered to be 'disabled' and benefits will be paid. This type of coverage is typically restricted to professional occupations like doctors, dentists, and lawyers.

With the 'any occupation' definition of disability, you have to be unable to perform any occupation that you are suited for. In essence, if you can't return to your normal occupation, you will be expected to find a suitable alternative occupation, potentially in a different industry all together.

Disability insurance tips

  • Make sure that your insurance agent can source from different providers to get you the best rate.
  • Some policies help cover a portion of rehabilitation services like physiotherapy. The insurance companies are on your side here, as they want you to get better and return to work.
  • A lot of factors contribute to the premium for individual disability policies: age, gender, health, smoking status, occupation, and claims history to name a few. Variables like the benefit duration period you choose will also impact the premiums you pay. Work with your agent to understand how these factors will impact your premiums.
  • All disability policies have a 'waiver of premium', which means that as you are disabled and collecting benefit payments, you are not expected to pay the policy premiums.

Do you need disability insurance?

If you currently earn any form of employment (or self-employment) income, then disability insurance probably makes sense. In fact, your ability to earn income is probably your greatest financial asset.

Some employees have disability coverage through work, however these plans often don't provide coverage for a long enough benefit period. Spend time researching your group benefit plans, or better yet, run it by a financial professional like a Frame financial planner, to see if you have sufficient coverage.