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Why Your Disability Coverage May Not Be Enough

Feb. 12, 2014
3 mins
An older couple drink their coffee at the kitchen table

When it comes to insurance, most people wouldn’t think twice about protecting their home and vehicle. But what about your most valuable asset: your ability to earn income?

If you ever fall ill or suffer an injury, you’ll be thankful you have disability coverage to help cover your bills. Disability insurance is overlooked by a lot of individuals (most don’t even know what their coverage is), and it’s an area where individuals are often underinsured. Even if you have group disability coverage through your employer, it may not be enough.

Why do I need disability insurance?

If you have a spouse and dependents, you should already have term life insurance to help protect your loved ones - but what if you become disabled and unable to earn a paycheque? Don’t think it can happen to you? Think again. One in three people will be disabled for 90 days or longer at least once before age 65.

Individual vs. group disability insurance

Not all disability insurance is created equal. There are two main types of disability insurance: individual and group. If you’re employed, chances are you’re covered under group disability insurance. Yet while group disability insurance offers some coverage, it may not be enough.

“Most disability benefits only cover 60 per cent of your salary," says Brian Poncelet, an independent certified financial planner (CFP) and owner of “Many plans will only provide coverage for the first five years of your disability. In order to save on costs, many work policies have a two-year duration of benefits. If you become disabled, you’ll get paid for two years and then you’re on your own. Some group plans have no short time disability – this means you have to be totally disabled and wait six months or longer to get paid!”

Government support options

The government does offer benefits to disabled workers, but they’re very minimal. You’re only eligible for Worker’s Compensation for work-related accidents. Employment Insurance will only cover for a maximum benefit of $514 per week you for up to 15 weeks. Although you can apply for CPP Disability, it’s very difficult to qualify – your disability must be "severe" and "prolonged" and it must prevent you from being able to work at any job on a regular basis. The maximum CPP disability benefit you can receive is $1,212.90, although the average is only $841.95. As you can see, relying on government benefits alone is tough, especially when you have a family to support.

Is individual disability coverage right for you?

If your group disability benefits and government benefits aren’t enough, that’s when you should consider individual disability insurance.

“Most individual disability insurance plans have a significantly better partial provision that covers partial disabilities to age 65,” says Poncelet. “I would rank partial disability coverage at the top of any list of key features – and note that it is almost never included in a group plan. Those of us who earn our living using primarily our knowledge and communication skills – and those of us who are motivated to try to work even if our ability to do so is impaired – will have significant problems collecting under a group plan which almost certainly does not cover anything but total disabilities.”

Who needs disability insurance?

Unless you’re debt-free and can afford take a two-year vacation, you’ll most likely need some form of disability insurance. Unlike term life insurance, even individuals without a spouse or dependents need some form of disability coverage. Even an emergency fund with three months’ living expenses can quickly run dry if your disability is prolonged. Let’s take a look at the individuals who benefit most from individual disability coverage:

  • Self-Employed: One day you’re walking to pick up the morning newspaper and you’re struck by a car. If you’re self-employed, you have no group disability insurance. Your ability to earn income is your livelihood, so it’s crucial to purchase adequate disability coverage.
  • Group Life Insurance: As mentioned, even if you have group coverage, it may be enough to get by if you become disabled. Review your group policy at work and see if would provide enough income to help you survive if you were unable to work.
  • Frequent Job Changes: The days of being able to rely on a job for life are gone. If you frequently switch employers, it’s important to have individual disability coverage to bridge the gap in between when you’re not covered by group benefits. Individual disability plans offer portability, while group plans do not.

Review your disability insurance coverage

If there’s one thing you take away from this article, it’s the importance of getting your hands on a copy of your disability coverage and reviewing it for yourself.

“Most HR does not review disability coverage with the staff, yet most people are very familiar with what kind of dental coverage they have,” says Poncelet. “It’s critical for the people to review and make their own judgmental call on what they have and don’t have."

Sean Cooper

Sean Cooper is the author of the new book, Burn Your Mortgage. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Financial Journalist, Speaker and Money Coach, his articles and blogs have been featured in publications such as The Toronto Star, Globe and Mail, Financial Post, Tangerine: Forward Thinking blog and TheDot. You can follow him on Twitter @SeanCooperWrite.

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