Disability Insurance replaces your monthly income should you become sick or hurt and cant work.
If I were to offer you two job opportunities which one would you pick…
1) $50,000 per year, if you get sick or hurt and cant work you get nothing.
2) $48,000 per year, If you get sick or hurt and cant work you get 70% of your income or $33,600. Which would you pick?
Most people who I have asked this question to pick the latter.
In this case you just purchased a Disability policy with a $2000 per year premium.
What effects your cost when buying a disability policy;
Occupation - Insurance companies place different occupations in to different groups and offer rates for different levels of perceived danger in an occupation.
For example It would cost more for a contractor to get disability than an accountant because insurance companies perceive the contractor more likely to get sick or hurt.
Important note: Different insurance companies specialize in different job classes. Some companies are not competitive at all in certain job classes. It is important to shop around!
Waiting period - This is the amount of time you will be disabled before payments commence. For example - it costs more for a 30 day waiting period than a 90 day waiting period. Waiting periods vary based on insurance company, but we have found in general the biggest premium breaks come at a 90 day waiting period you simply need to save up enough money to make up that three months of income should you not be able to work.
Benefit Period - You can pick how long you would like to be paid should you become disabled. For example - It costs more to have income paid until age 65 than paid for 5 years.
Disability Definition - There is different definitions for disabililty. I will give you the best definitions from best to worst. (most expensive to least expensive) Some occupations have no choices due to risk level of the occupation.
Own Occupation - Available only to certain professionals, with this definition the insured would be able to work in another occupation while he or she is totally disabled in his or her own occupation and continue to recieve disability benefits.
Regular Occupation - Defined as "the job or jobs being done at the onset of disabilty". Under this definition, the insurer cannot require or force you to return to work in an occupation other than the one you have been working.
Any Occupation - Means that, due directly to injury or sickness, the insured is unable to perform the important duties of any gainful occupation for which he/she is reasonable qualified, bases on his/her education, training, or experience, and the insured is recieving the appropriate care and attendance of a physician who is licensed to practice in Canada. You will notice this definition is the least attractive, as you need to be basically permanently disabled.
Don’t be alarmed...This product costs more money than regular life insurance because you are far more likely to become disabled than pass away. 1 in 3 people will be disabled for some period of time in their life.
There is also a number of Riders (added features) available for disability insurance.
To see a report on disability claims statistics in Canada click here
