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Is it worth purchasing disability insurance?
This is an important question that not many people think of. Disability insurance can be helpful in many ways, especially if you were to suffer from a long-term disability.
You may be thinking: “Why would I need this? I don’t think I could ever get hurt or sick enough for this to happen!” But the truth is, life happens, and sometimes things are out of our control. That’s why it’s crucial that we’re prepared for anything that life throws at us.
If you’re not sure if it’s worth purchasing, read on to learn why long-term disability insurance might be one of the most important purchases you ever make.
What Is Disability Insurance?
What exactly is disability insurance, and how is it beneficial?
Disability insurance pays out a monthly benefit to you if you cannot perform the duties of your own occupation due to an injury or illness.
It’s vital in securing your financial future for you and your family if an unexpected event robs you of your ability to earn a living.
What does disability insurance cover?
The two main categories of disabilities that disability insurance covers are accidents and sicknesses. Let’s briefly go over how these two events can cause you to become disabled.
Accidents
It’s no secret that accidents can be quite dangerous and disabling.
Accidents can happen at work or in your personal life. Think about the many accidents that can happen: falls, car accidents, injuries from playing sports, and much more. If you’re in an accident, it can take a long time to recover, and your monthly income will be interrupted. Disability insurance ensures that money keeps coming into your life even if you can’t work for months—or even years.
Sicknesses
Like accidents, sicknesses can happen to anyone, even someone living a healthy lifestyle. Cancer is a leading cause of disability, as well as mental health issues, musculoskeletal disorders, and much more. As long as your sickness makes you unable to do your job for an extended period, you will receive benefits.
You never know when an accident or sickness may occur. That’s why you need to have protection in place before it happens. If you wait until after the event, it will be too late.
Why is disability insurance so important?
Protecting your income
Your greatest asset is your ability to earn an income. It took many years of education and hard work to get to where you are in life. Without the protection of a disability insurance policy, you could stand to lose everything you worked so hard for in an instant. That’s why its ability to protect your income makes it one of the most important aspects of your financial plan.
Covering living expenses
Aside from protecting you from lost income, disability insurance can also help cover the cost of living. These include mortgage or rent payments, car payments, childcare expenses, groceries, utilities, and other monthly expenses.
You deserve to have peace of mind knowing that if you become disabled, you and your family won’t face financial hardship.
Who needs disability insurance?
Does everyone need disability insurance?
If you are a working professional who makes a living by working, the answer is yes. In fact, you can call it an absolute necessity. And it’s not just for high-income white-collar professionals like dentists, physicians, accountants, attorneys, executives, etc. Skilled and unskilled labourers also need protection from long-term disabilities. Arguably, a lower-paying job could use the disability benefits more.
Disability insurance is also a crucial part of a financial plan if you are self-employed. That’s because you have no other source of income if you become disabled. Unlike some employees who have group LTD through their employers, self-employed individuals don’t have any disability insurance policies besides the ones they buy.
What Are The Different Types Of Disability Insurance?
There are many different disability policies available, and it’s not always easy to figure out which type is right for you. That’s why it’s so crucial that you know what they cover before purchasing one! Let’s discuss each type of policy in detail below:
Short-term disability insurance (STD)
As the name suggests, STD insurance only lasts for a short period of time, usually for up to 26 weeks.
Being short doesn’t mean there are conditions on the kind of leave you can take. As long as an accident or sickness leaves you unable to work, you can collect a payout from your short-term disability policy.
An STD policy pays up to 75% of your salary up to a weekly maximum.
Long-term disability insurance (LTD)
If you cannot work longer than STD insurance will pay, LTD insurance kicks in. The disability insurance benefits begin after STD insurance ends. They continue until your benefit period expires, or you can return to your job, whichever comes first.
LTD offers a longer benefit period with a longer elimination period. The elimination period, also called the waiting period, is how long you have to wait before payments begin.
On the other hand, the benefit period is how long you receive payments. You can choose from two, five, or 10 years, or even until age 65.
Long-term coverage for disability insurance replaces 50-80% of your income, tax-free. The tax-free nature means this money will be available without any financial repercussions incurred through taxes, so more money stays with you.
Group LTD insurance
If you are an employee, your employer may provide you with long-term disability insurance as part of your monthly benefits package. It replaces 50-70% of your gross income with a maximum limit, depending on the plan design.
However, some downsides to this type of policy make it less desirable than purchasing your own individual policy. For example, if you change jobs or leave employment altogether, the policy isn’t transferrable to another company, meaning you will lose your disability coverage.
Additionally, any disability insurance premiums paid by the employer for these policies are tax-deductible for the employer, so you will have to pay tax on the benefits.
Mortgage disability insurance
Your mortgage lender sells you mortgage disability insurance to cover your mortgage payments should you become disabled in your own occupation. It doesn’t replace your income, but it does help protect the financial stability of your family and home.
This type of insurance will cover your monthly payments after an initial waiting period of 60 days and will pay until you return to work or for 24 months, whichever occurs first. The maximum monthly benefit payable per mortgage will vary according to the lender, but the maximum is usually $3,000/month.
Is Disability Insurance Worth It?
Now that you know the types of disability insurance available, the question remains: is it worth it?
If you depend on your paycheck to maintain your lifestyle, then the simple answer is yes. But to answer the question, you have to ask another one: how much does long-term disability insurance cost? Without knowing the cost, you can’t have a discussion about its worth.
The cost of long-term disability insurance varies depending on your age, occupation, and other personal factors. Policy design such as the benefit period, waiting period, benefit amount, and optional riders also plays a part in its cost. Disability insurance premiums vary a lot based on these factors.
Not all disability insurance policies are the same. Before buying it, make sure you understand the coverage and benefits that come with each plan. By doing so, you can make informed decisions about which policy best fits your needs. You’ll want to make sure that the policy is right for you because many different types of policies are available with varying benefits and prices.
Disability insurance can be expensive, but it’s worth considering because it provides financial support in case of injury or illness.
Continue reading so you feel more confident and informed about your potential insurance needs.
Is short-term disability insurance worth it?
Because an employer usually provides STD insurance, it doesn’t cost you anything. In some cases, the employer doesn’t pay for it, so you may have to pay for the coverage with payroll deductions.
If you’re eligible for Employment Insurance (EI), you may not need to purchase STD since EI benefits overlap with STD insurance. EI benefits are capped at a low weekly amount, so it only replaces a small portion of your income. To fill the gap, you may need to buy STD insurance from your employer.
Is long-term disability insurance worth it?
Long-term disability claims happen more frequently than you think. 1-in-3 people will become disabled for more than 90 days. And if your disability lasts longer than 90 days, there’s a good chance it’s an extended disability. How will you continue paying for the cost of living during a period of total disability? If you can’t answer that, then you need long-term disability insurance.
Did you know that it usually only costs 1-3% of your annual income? That’s a small price to pay for protection that can last until age 65, especially if you are self-employed and don’t have group LTD coverage.
Another benefit of your own long-term disability policy is that you can customize it to your liking. For example, you can get an own occupation policy, which pays out if you can’t do your job, even if you were working elsewhere. Compare that with an any occupation policy commonly found in group LTD. This is where you lose your monthly benefit if you can work in another occupation that you qualify for based on your training, education, and experience.
How about group LTD?
The advantage of group LTD insurance is that your employer may subsidize a portion of it, lowering your cost. It can even pay for the entire thing, in which case you don’t need to ask whether it’s worth it.
The downside of group long-term disability insurance is that you have less opportunity to tailor the policy to your needs. For example, you can’t choose to add optional riders. A rider that you can buy on your own disability insurance policy is called the cost-of-living adjustment. With this rider, your disability insurance benefits increase every year to keep up with inflation. Your group LTD doesn’t let you choose this type of rider.
Another downside is that you will lose your coverage if you change your job.
That’s why even if you have group LTD, you may want to consider adding an individual policy. One that you can use to supplement your group LTD.
Is mortgage disability insurance worth it?
Do you have a mortgage and no other disability policies?
If not, you may want to consider getting a mortgage disability insurance policy. While it doesn’t replace your income, it could help keep a roof over your head if something were to happen.
A good rule of thumb is that if you don’t have any other disability coverage, this type of insurance is worth considering. However, these are typically more expensive than a long-term disability policy, so you should always try to buy that before mortgage disability insurance.
Where can you get disability insurance?
Most of the same insurance companies that sell life insurance also sell disability insurance. But not all of them do. You can start your search with all the insurance companies in Canada. Next, filter them out by the ones who offer disability insurance. Then, you can compare their policies to each other and find the one that you like the best. After all that, you need to apply through an insurance agent.
Sounds like a lot of work?
If it does, you’re right. The average consumer will have a hard time navigating the market and finding the best policy.
Remember, there are many different types of policies available, each with its own advantages and disadvantages. That’s why you should make sure to speak with an insurance professional before making a decision about which one is right for you.
An experienced and knowledgeable insurance broker can help you shop for the best coverage and rates in the market and customize a quote based on your needs and budget.
Get A Disability Insurance Quote Today
So is disability insurance worth it?
We believe that every individual should evaluate their personal needs, budget, and risk tolerance before deciding on an answer.
Choosing the right policy can be difficult with many to choose from and different terms that sound complicated. We know it can be hard deciding on which insurance company to trust when there are so many options out there. That’s why we’re here!
By offering competitive pricing from many insurance providers in Canada, we can help you choose the right policy for your needs. Our knowledge and experience also ensure you are getting the best policy. Whether you need short or long-term, temporary or permanent coverage, we have options to meet any situation.
If you need disability insurance or want an expert opinion about what would work best for your family, email us at info@briansoinsurance.com give us a call today at (604) 928-1628!
Get Your Disability Insurance Quote Now!
While we make every effort to keep our site updated, please be aware that timely information on this page, such as quote estimates, or pertinent details about companies, may only be accurate as of its last edit day. Brian So Insurance and its representatives do not give legal or tax advice. Please consult your own legal or tax adviser. This post is a brief summary for indicative purposes only. It does not include all terms, conditions, limitations, exclusions, and other provisions of the policies described, some of which may be material to the policy selection. Please refer to the actual policy documents for complete details which can be provided upon request. In case of any discrepancy, the language in the actual policy documents will prevail. A.M. Best financial strength ratings displayed are not a warranty of a company’s financial strength and ability to meet its obligations to policyholders.
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