Top 7 Things to Consider When Buying Disability Insurance

Having disability insurance is usually consider a must have by employers trying to attract talented employees. In high demand industries, like technology, oil and gas, bio-tech, etc. there is always a challenge attracting and retaining good employees, and so a good benefits plan with excellent disability coverage is a must.

Why then do so many self employed Canadians forgo getting their own disability insurance coverage? There is a growing trend in Canada for employees to leave their traditional role as a salaried employee and become a consultant. They can consult back to the same company that used to have them on payroll and earn much more money. Others take their advanced skills onto the open market and consult to many different companies and earn considerably more than they used to be making as an employee.

When going out on your own it is important to plan for a potential disability, causing income loss. If you were to become disabled, you could lose not only your income, but your savings and even your assets like your home. If you are self employed, your income probably depends on your ability to go to work each day. This is your #1 priority to protect when becoming self employed.

Here are the top seven things to consider when buying disability insurance:

1 Your premium must be paid with after tax dollars, but the benefit is tax free if/when you are ever on claim.

As a self employed business owner you can’t pay for the premium out of business funds like a group insurance plan. You should personally own the plan outside of your business and have the tax free benefits paid directly to you.

2 Business Overhead Expense disability insurance coverage may be available in combination with personal disability coverage.

If you run a business like a store or mechanic shop, with fixed overhead costs like rent, utilities, insurance premiums, lease payments, wages, etc. you can have a tax deductible disability insurance policy on yourself for the benefit of the business. If you became disabled and could not come into work each day, the business would receive tax free money to pay for these fixed expenses. This protects the business from having to close the doors if you were to ever become disabled and unable to run daily operations.

3 You can insure only about 65% of your income.

As you earn more and more money, disability insurance companies will insure a smaller percentage of your total earnings. This is to prevent you from becoming too financially comfortable on claim and delay getting back to work. For instance, if you earned $250,000 per year, you could get a plan with approximately $9,000 per month in benefits. This works out to $108,000 tax free income while on claim. You might find this is a decrease in after tax earnings you used to see while being gainfully employed. You will probably still be able to meet all your daily living expenses, but not have as much money as while you were working. This will theoretically give you incentive to get back to work vs. remaining on claim.

4 Personal disability insurance can give you coverage for your regular occupation through to age 65.

Most group insurance plans only give “regular occupation” coverage for 24 months, and then you are re-assessed as “any occupation”. This means if you are fit to re-enter the workforce in any form of gainful employment you are suitably trained for, you would lose your benefits. With “regular occupation” definition extending to age 65, you would continue to receive benefits through to age 65 if you could not return to the occupation you were previously doing. This is very important to people who have highly specialized skills who want to remain in their industry vs. going to another occupation (like a doctor, lawyer, engineer, accountant, professional sales person, etc.).

5 You can add specific riders and benefits to your plan to make it more valuable.

Yes, additional riders would increase the cost of the disability insurance policy, but the benefits might be worth it. You could add riders to increase your monthly payout with rising inflation, or have additional money paid out into a retirement plan. You could guarantee your ability to increase your disability insurance coverage as your income grows, no matter what your future health might be. There are even riders that would return your premium to you if you never had a claim, like insurance on your disability insurance policy in case you never needed it.

6 Cost is determined by not only age and health, but by the risk of your job.

The lowest risk category for disability insurance is for people who do highly skilled jobs, like a doctor, accountant, senior business manager, dentist, etc. After that comes people doing desk jobs or professional sales, followed by supervisors of other workers in a manufacturing or construction job. Finally the most expensive cost for disability insurance is for those doing risky blue collar jobs, like roofing, high rise construction, etc. If you are in a more favourable occupation you can lock in your rates for life, no matter what future occupation you might change to. If you are in a risky occupation, you might consider saving money by buying an “injury only” policy which is much less expensive than insuring illness also.

7 Look for upgrades and incentives from insurance companies when shopping for your disability insurance plan.

It is very common that insurance companies offering disability insurance will allow people to “upgrade” their risk class if they have been in the professional a long time and are earning above average income from their peers. Also, there are incentive programs like a recent graduate plan helping recent grads from professional colleges, like medicine, dentistry, engineering, etc. get cheap introductory rates that can be locked in for life. A qualified insurance broker, specializing in disability insurance, can shop the market and find you the best deal and the best upgrades.

If you need more help finding a disability insurance plan that meets your needs, please feel free to contact us at Life Guard Insurance. One of our brokers will be able to find you the disability insurance plan that best suits your needs.

The article was written by Mitch Reynolds+. If you found this article interesting or it made you think, please feel free to share your comments below. Liking us on Facebook, giving us a +1 on Google or Tweeting this article about disability insurance would also be very much appreciated.

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