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Although long-term disability insurance has been around for a long time, many misconceptions still exist. People don’t understand how it works or why they need it. As a result, they have a hard time separating the facts from fiction and end up believing disability insurance myths.
Before getting disability insurance, learn about the facts that dispel these 15 disability myths.
- Key takeaways:
- Even young and healthy individuals can experience disabilities at some point, highlighting the importance of securing disability coverage early in your career.
- Government programs and group disability insurance often have significant coverage gaps and provide insufficient benefits.
- Disability insurance policies vary widely, so it’s important to carefully compare quotes from different companies.
What Is Disability Income Insurance?
Disability insurance is a type of insurance that pays you a benefit if you are unable to work due to an injury or illness.
In exchange for premium payments, the insurance company provides a monthly benefit that begins after a 90 or 120 day waiting period. The benefits last until age 65 at the longest, although some disability policies pay for two or five years.
Although the benefits won’t replace your entire income, they range from 50% to 80% of your pre-tax net income, helping you avoid a financial catastrophe while recovering from your disability.
But while disability insurance is crucial in providing financial security, its perceived complexity and the public’s lack of awareness lead to many misconceptions. Here are 15 disability myths you should stop believing now.
What Are Some Common Disability Insurance Myths?
Myth #1: I don't need disability insurance because I am healthy and careful
If you don’t think a disability will ever happen to you, think again. Statistics show that one in three adults will become disabled before age 65 for 90 days or longer. And since illnesses—not accidents—cause most disabilities, being careful won’t protect you from becoming disabled.
The truth is that disability insurance is designed for the healthy. Someone with medical conditions will have a more challenging time qualifying for disability insurance. That’s because of the higher risk of disability due to their medical history. Even if they can buy it, their disability policy will have an exclusion for pre-existing conditions.
Myth #2: I don't need disability insurance because I have an emergency fund
An emergency fund should cover your expenses for three to six months, which is excellent if your disability is short-term. But how will you cope with a long-term disability? One that lasts at least six months and is potentially permanent? The truth is that the only way to protect yourself from a financial disaster of a disability is with a long-term disability insurance policy.
Myth #3: The government will take care of me if I become disabled
Unfortunately, government benefits have many gaps in coverage. For one, Employment Insurance (EI) sickness benefits only pay for up to 26 weeks, leaving you on your own for more prolonged disabilities.
Although the Canada Pension Plan (CPP) disability benefit provides long-term disability coverage, it only pays you up to $1,538.67/month in 2023, which isn’t nearly enough to cover your living expenses.
To make matters worse, both EI and CPP benefits are taxable, lowering the net amount you receive.
Myth #4: Workers' Compensation is all the disability insurance I need
On the surface, Workers’ Compensation provides exceptionally generous benefits. On top of wage-loss benefits, you may receive health care and vocational rehabilitation benefits, depending on your province.
However, Workers’ Compensation only covers workplace-related accidents and sicknesses. Since accidents only make up a small percentage of all disabilities, you’re exposing yourself to most disabling events. For example, Workers’ Compensation would not cover disabilities caused by mental and nervous disorders, cancer, and musculoskeletal diseases.
Myth #5: I don't need individual disability insurance because my group disability policy covers me
As an employee, you may have access to group benefits provided by your employer. This includes life insurance, extended health and dental coverage, and disability insurance.
However, coverage through your employer has many shortcomings. It might have a low monthly benefit amount or not calculate your commission or bonus in determining the amount you’re eligible to receive. Also, you have to pay taxes on the benefits, so you will end up with less than you think.
Last but not least, you don’t have any control over the disability coverage. Your employer may reduce benefits or cut disability insurance out of the group benefits, saving it some money. You may also change jobs where the new employer doesn’t have any disability coverage at all.
Myth #6: I don't need disability income insurance right now because I am young
Although young people are less likely to become disabled than older individuals, it doesn’t mean it can’t happen. In fact, one in six claims for RBC Insurance is for people under 40.
Besides, disability insurance is cheaper the younger you are. That’s why it’s a good idea to lock in your rates while you’re young and healthy. As your career progresses and your income grows, you can increase your coverage without any evidence of insurability. So even if your health declines in the future, you can still raise your monthly benefit. All you need to do is justify the increase with a higher income.
Myth #7: Since my job isn't dangerous, I don't need disability insurance
As seen in myth #4, only a small percentage of all injuries occur on the job. The truth is that most injuries occur outside the workplace. Also, illnesses cause most disabilities, not injuries. So whether your job is dangerous shouldn’t have any bearing on getting disability insurance.
Myth #8: Disability income insurance is expensive
The cost of disability insurance depends on many factors, like your age, gender, smoking status, occupation, and monthly benefit amount. It could cost 3-5% of your income, depending on these factors. But when you think about the benefit you receive, it may seem like a great deal.
Consider a self-employed 35-year-old earning $120,000. He can make over $6,000,000 until age 65 (assuming a 3% annual increase in his income). Suddenly, a few hundred dollars per month in insurance premiums to protect his income-earning ability seem like a no-brainer.
Myth #9: I can self-insure
Self-insuring means using savings to replace your income, borrowing from a bank, raiding your retirement funds, or getting financial support from family and friends. None of these are good financial options if you are chronically ill or have a long-term disability.
First, your savings will only last three to six months, as mentioned in myth #2. Next, getting a loan while you’re disabled will be complicated when your lender isn’t satisfied with your ability to repay it. Although raiding your retirement funds will help now, it will cost you dearly in the future. Lastly, family and friends only have a limited amount of money to lend or give you.
Myth #10: Disability insurance won't cover depression or other mental health conditions
Unless you already have a mental health condition, disability income insurance will cover these causes of disabilities. But if you already suffer from it when you buy disability insurance, you will have a mental health exclusion on your policy—all the more reason to get covered while you’re young and healthy.
Myth #11: The insurance company won't pay my claim
Did you know that Canada Life paid over $172 million in claims in 2020 alone? While insurance claim denials make for good headlines, that’s not representative of the insurance industry.
Insurance companies are committed to evaluating all claims thoroughly, fairly, and objectively. Therefore, they only deny claims that are not legitimate. For example, claimants who don’t meet the definition of a total disability as defined in the contract would have their claims denied. As long as you have an injury or illness that prevents you from working, you will have your claim approved.
Myth #12: Disability payments start immediately
All disability insurance policies have a waiting period after you become disabled before payments start. For most disability policies, this is between 90 and 120 days. The insurance company will pay benefits if you’re still disabled after the waiting period.
Myth #13: I have to pay tax on the benefits
Partially true, depending on the type of disability policy you have. While benefits from a group disability policy are taxable if your employer pays the premium, you don’t have to pay taxes on an individual disability insurance policy.
Myth #14: All disability income insurance policies are the same
Not all disability policies are the same! The truth is, there are lots of disability insurance products out there.
Some only cover injuries, while others cover illnesses as well. Some have many exclusions, while others only have a few. You can also upgrade your policy with riders that enhance your coverage. For example, the cost of living rider increases your monthly payment every year while you’re on a claim so it can keep pace with inflation.
You’ll want to be diligent when reviewing disability quotes from different insurance companies to make sure you’re making an apples-to-apples comparison.
Myth #15: Critical illness insurance and disability insurance are the same
Critical illness insurance pays a benefit if you’re diagnosed with one of the 25 covered conditions like cancer and heart attack. On the other hand, disability insurance pays if you are unable to do your job due to an injury or illness.
Also, critical illness insurance pays a lump sum benefit like life insurance, while disability income insurance pays a monthly benefit. These are just some of the differences between disability and critical illness insurance.
Which Of These Disability Myths Did You Believe?
Don’t worry if you answered most or all of them. Most people also believe these disability myths, so you don’t have to be too discouraged. What’s important is now you know the truth about disability insurance.
To dispel other disability myths you may have heard, contact us at info@briansoinsurance.com or 604-928-1628. Besides separating facts from fiction, we will also help you get the best disability policy for your personal situation. Reach out for your complimentary consultation and protect your income today.
Get Your Disability Insurance Quote Now
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