By Sheryl Smolkin
How will your end of the month be if you have an accident or fall ill? Here’s how long-term disability insurance can protect you.
Has an injury or illness ever prevented you from working?
According to the Sun Life Barometer
2019, 1 in 5 workers in the country recently had an accident or a severe health problem. (The Barometer is a survey of people’s attitudes about their health and finances.)
Among them, 25% of these people had financial problems afterwards. And 23% had to dip into their savings or even exhaust them.
This is why long-term disability (or “LTD”) insurance is essential during our working years. As much as life insurance and home insurance. Because even if you are healthy today, you never know what the future holds. With sufficient disability insurance coverage, you could be protected in the event of illness or injury.
First, you might want to check what your employer offers for disability insurance. Here are some questions to ask yourself:
Do your benefits include LTD insurance? Many employers offer this type of insurance, as do some professional associations. Note that if you pay the entire premium for your group LTD insurance, your benefits will not be taxable.
How much does group LTD insurance cost? LTD insurance offered in a workplace plan generally costs less than individual insurance. Usually, benefits are a set percentage of your pre-tax income. In addition, they cannot exceed a particular ceiling. For example, you could receive two-thirds of your salary, up to $5,000 per month. There may also be a schedule of benefits, like this:
67% of the first $2,500 of monthly income (before disability)
50% of the second $2,500
40% of remaining monthly income
Also, be aware that any money you receive from sources listed in your contract will be deducted from your LTD benefits. This is the case for disability benefits from the Quebec Pension Plan (QPP) or the Canada Pension Plan (CPP). It also includes workers’ compensation and auto insurance benefits.
How long are LTD benefits paid? In general, they are for 2 years when you cannot do your usual job. If you cannot do any job after 2 years, benefits can be extended. They could continue for many years and even up to age 65 if your disability is permanent.
Do I have to pass a medical exam to obtain basic group LTD insurance? No. But in some plans, employees can purchase additional coverage. These options may require you to submit to health screenings or answer questions about your health.
Can the premiums (monthly or annual fees) for LTD plans change? Bonuses may change from year to year upon the renewal of the employer’s contract. It all depends on the demographic profile of the insured group. It also depends on the claims paid and the disability trends in the market. Your group coverage will end if you leave the company, retire or reach age 65. It can also terminate if your employer decides to offer its benefits plan no longer.
Remember: disability insurance exists to replace your income if you become unemployable. A disability can occur, among other things, after an injury, a severe illness or a mental health problem. And disability can be either short or long term.
Also, note that there is a wide range of disability insurance options. These include your employer’s group coverage plans, individual insurance, and government plans like workers’ compensation and pension funds.
Need help figuring out what you need? An advisor will help you choose the right coverage given your overall financial plan.