What is disability insurance?
According to Jim Yih, financial expert of the blog Retire Happy, “disability insurance protects your greatest asset: your ability to earn money.” If you can no longer work for a certain period due to illness or an accident, this insurance covers the lost income with monthly benefits.
There are two types of disability insurance: short-term and long-term.
Some employers offer short-term disability insurance as a benefit. This coverage generally protects you for the first 120 days of disability.
Long-term disability insurance can be purchased individually or as part of the employer’s group plan. This coverage begins on the 120th day of disability (delays may vary) until the usual retirement age of 65 years.
Do you need disability insurance?
Disability insurance isn’t just for freelancers like Caroline Cakebread. Your employer may offer this coverage, often referred to as long-term disability or LTD. If so, check your group plan features to find out:
the definition of disability;
conditions;
the duration and amount of benefits.
Will the amounts paid by your group plan if you fall ill or have an accident be enough? If not, you may consider purchasing your disability insurance.
Also, be aware that workers’ compensation only covers certain workers and inevitable work-related accidents. For example, let’s say you fall off your bike on the weekend. Even if you become unable to work for a long time, you will not receive this compensation since it is not a work-related accident.
What’s more, EI sickness benefits only cover a maximum of 15 weeks. What will you do if you cannot return to work after this period? This is where disability insurance (along with other possible sources of income) comes in to help you make ends meet in times of need.
What distinguishes disability insurance from other insurance?
Disability insurance is often confused with two other types of insurance: long-term care insurance and critical illness insurance. The difference is that disability insurance covers lost income for people under 65. The different two kinds of insurance are designed to cover health care expenses. Here’s what each has to offer:
Disability insurance pays monthly benefits that cover the loss of income for people under 65 who cannot work due to illness or accident.
For more information on disability insurance
Long-term care insurance reimburses your expenses or pays you regular payments to cover part of your expenses for the care you need in the event of a significant physical disability or significant cognitive impairment (nursing care at home or accommodation in a centre for chronic disease, for example).
Five things to know about long term care insurance
Critical illness insurance provides a one-time payment if you are diagnosed with a critical illness. You will receive this payment if your plan covers the disease or problem and if you survive for the required period.
See what impact a critical illness could have on your finances. Use the essential illness insurance calculator.
What type of insurance is right for you?
The choice depends on your particular needs and your age. Your needs may be simple, and one type of insurance may be enough for you. Several people are financially dependent on you if you have a large family. Depending on the case, several insurances may be necessary to help protect you and your loved ones.
For her part, Caroline Cakebread says she feels much more comfortable cycling around town since taking out disability insurance. Moreover, now that she has two children, she is even considering increasing her coverage.
“Thanks to my insurance, I have peace of mind. But she adds that she’s also put some money aside in an emergency fund to cover expenses for the first few months before her benefits start. “I hope I never need this insurance. But I’m glad she’s here just in case. »
How to build your emergency fund
Need help finding the type of insurance that’s right for you? A meeting with an advisor could help you see things more clearly.
