D. Smith: Buy disability insurance before you need it

Once you become disabled, or are considered uninsurable, you cannot purchase disability insurance.

You should purchase disability insurance before you need it.

Once you become disabled, or are considered uninsurable, you cannot purchase disability insurance.

Disability insurance replaces a portion of your employment income—approximately 60 per cent—if you are no longer able to work due to sickness or disability.

Insurance companies are not willing to replace 100 per cent of your pre-disability income because there is little incentive to return to work while still receiving all of your salary.

Chronic pain, cancer treatment, severe depression, broken bones, etc., are a few of the reasons you may not be able to work and are then eligible for disability insurance coverage. A doctor will verify the reason for your disability and complete the forms required by the insurance company for the disability claim.

The financial consequences of a disability can be devastating.

In the event of a disability and you cannot meet your financial obligations, for example rent or mortgage payment, utilities, food costs, you may quickly end up needing money to pay your day-to-day expenses.

Where will this money come from?

Short-term and long-term disability insurance covers two different time periods.

Short-term disability coverage typically covers the first 120 days of a disability.  Long-term covers the period of disability after 120 days.

Premiums are based on many different factors including, age, sex, coverage amount required, elimination period and the benefit period.

The shorter the benefit period (an example is choosing a plan that covers a five-year benefit period verses payable to age 65) will lower the premium.

The longer the elimination period, depending on the disability plan, (the elimination period can start at day one and go up to 120 days), the lower the premium cost.

Understand the difference between “your own occupation” or “any occupation.” If you want to protect yourself based on your own job classification, purchase “own-occ” coverage. Any occupation class means you may be requested to find employment for other types of work.

Insurance companies can request a training program to try and get the person back to work in another occupation.

Make sure your policy cannot be cancelled. Mortgage insurance disability insurance is owned by the financial institution and is not owned and controlled by you. You are paying the premiums for this coverage so ensure you purchase a non-cancellable type of disability insurance, instead of a cancellable type.

You can purchase riders on disability insurance to include cost-of-living adjustments so your coverage amount can be increased in future years without having to prove health insurability.

Disability insurance can be purchased under group coverage, as an individual disability plan or as business coverage.  Make sure you read the fine print on your policy and if you have questions, ensure it is explained so you understand what you are buying.

We pay monthly or annual insurance premiums for our vehicle and our homes. We purchase life insurance to pay out upon our untimely death.  However, many individuals do not purchase disability insurance to insure and protect their earning power.

You are more likely to suffer from a disability during your working years than die.

Nearly one out of three workers will suffer a disability lasting three months or more at some point in their career.

Disability can continue for days, months—sometimes years—and can consume a lifetime of a person’s earning power.

Personal finance isn’t just about growing your finances, it’s also about protecting what you have.

Disability insurance provides you with the income you need while disabled and you are unable to earn your employment income.

Kelowna Capital News