No one ever thinks they’re going to become partially or fully disabled during their working years, but one in six Canadians will be disabled for three months or more before the age of 50.
As a professional, your group insurance—if you have any—likely won’t be able to cover the level of income replacement you would need if you were unable to work because of an accident or sickness. Long-term disability insurance fixes this.
In Canada, there are two broad types of disability insurance coverage to consider. Any-occupation coverage pays you if you are unable to work at any possible job because of a disability. Under this coverage, a surgeon who develops hand spasms, for example, would not qualify if he could work as a taxi driver. Regular-occupation coverage pays if your disability stops you from working in your current profession.
Both types are calculated as percentage of your current salary, usually about two-thirds of your earned income and aren’t subject to income taxes if you’re the one paying the premiums.
Disability insurance shouldn’t be dismissed lightly. Take the example of Jack.
Jack was a long-distance runner and CEO of an advertising firm when he decided to buy a disability plan. He was in great shape and training for his second New York marathon.
Decades after the policy was issued, Jack returned home from a trip. He reached into his trunk to pull out a suitcase but was overcome with pain. He was rushed to hospital where doctors returned a diagnosis of spinal stenosis, a condition which leads to the narrowing of the spinal canal in which the nerves are contained.
He survived surgery for the problem but the trauma left him unable to walk. Through perseverance and sheer strength of will, Jack taught himself to walk again; going from a wheelchair, to crutches, to leg braces and a cane. Two years later he walks unassisted, swims every day, and is back at work.
During this period Jack’s personal income disability replacement policy paid his bills and kept his family afloat. A separate loan protector disability policy paid for outstanding loan payments, and a business overhead disability policy paid his share of his company’s overhead. Without those contracts, it’s likely he would have lost everything.
Disability insurance matters. Having it—or not having it—can be life-changing.
David Wm. Brown, CFP, CLU, Ch.F.C., RHU, TEP, and a member of the MDRT. He is a partner at Al G. Brown and Associates in Toronto.