It can take months to recuperate from a car accident, for example. Your doctor may tell you to “take it easy” after a heart attack. Or maybe you are diagnosed with major depressive disorder following a traumatic event.

The chance of becoming disabled is greater than premature death. A typical 30-year-old is four times more likely to become disabled than die before age 65. The average insurance claim for disabilities that last for more than 90 days is longer than three years.

When you cannot work due to an accident or sickness, your paycheques stop. But the bills don’t stop.

Half of all mortgage foreclosures are because of disability. Most Canadians don’t have enough savings earmarked for emergencies to keep up debt payments. According to a 2015 Bank of Montreal survey, 56 per cent of Canadians say they have less than $10,000 in available emergency funds, 44 per cent have less than $5,000, and 21 per cent have less than $1,000.

Where do you get money to pay bills when you’re off work due to a disability? Do you have disability insurance (DI)? Will you get help from your family? Employment insurance (EI) benefits provide short-term assistance. Canada Pension Plan disability benefits can continue until age 65. Maybe you’ll need to make TFSA and RRSP withdrawals.

Most Canadians who do have disability insurance coverage can thank their employers for including long-term disability coverage as a mandatory part of their group insurance contracts.

Workplace coverage limitations

How good is your employer’s group disability insurance plan? Workplace plans can replace much of your regular income. But group plans have limitations. You may be left without coverage 24 months after you get sick. Review the definition of disability in your group insurance information booklet or webpage.

How much would you receive in benefits? If your employer’s group plan provides tax-free benefits equal to two-thirds of your before-tax salary, for example, you can reasonably expect to carry on lifestyle spending for a couple of years at much the same standard as before you became disabled.

If you receive a basic salary plus bonuses, group coverage could be based on your basic salary only. Because group coverage is usually capped at a maximum dollar value, you could be underinsured if you earn an above-average salary and two-thirds of your salary is well above the group benefit cap.

To remedy any shortfall in group coverage, buy your own private DI policy. You would have to take a medical but that is a good thing. Having your own private DI policy gives you ironclad coverage.

Age 65 limit

When you turn 65 while still working for an employer that provides group DI coverage, you will learn that coverage ceases at age 65. Therefore, you’ll either have to self-insure by relying on your savings or else try to buy your own personal policy.

Self-employed

Have you terminated your employment and started your own business? You won’t have EI any more. You will not have your former employer’s group coverage either. It’s time to buy a personal disability insurance policy.

If you become disabled through an accident or sickness with no disability insurance coverage at all, you could be forced to spend your TFSA and RRSP savings sooner than you would like. You might even sell property. Think of your DI insurance as a way to protect your savings as much as to replace your lost income.

by Terry McBride | June 10, 2017

 

Author: Terry McBride

Source: Postmedia Network Inc.

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