Different types of insurance were created to fit the various needs and situations one might encounter. Life insurance, for instance, is offered to provide sufficient money coverage for those that are hit by the sudden loss not only emotionally, but also financially.
On the other hand when a person becomes (totally) disabled, not only the person is not fit to maintain sufficient income for themselves and their family, but on the top of that the extra medical and other care for this person takes even more money out of their pocket, or the pocket of their family that has to provide the extra care for the once self-supporting. Therefore the disability insurance is often more important than the life insurance.
Disability Insurance provides a monthly income in the event you are unable to work due to an injury or illness. This type of coverage is crucial for self employed individuals and people who do not have disability insurance through their employer. Without adequate insurance, even the temporarily disabled can exhaust their savings.
Features of Disability Insurance:
- Provides tax-free income if you become sick or injured
- Ideal for anyone who earns an income and does not have disability insurance through their employer
- Unlike plans provided through employers that can end at any time, personal disability insurance plans cannot be taken away from you
- Depending on your profession, it could provide income during times of inability to perform your "own occupation"
- Benefit period (the length of time money is paid during your disability) can vary from 2 years to age 65
- The waiting period before your first cheque arrives can be selected as 30, 60, 90, or 120 days
If you're self-employed, disability insurance is even more critical because you have no employee benefits to fall back on. As more insurers recognize the growing trend towards self-employment, new types of disability plans are helping to meet the special needs of home-based and part-time workers and business owners. Here are an overview of those plans:
Personal Canada Disability Insurance
To be prepared for any personal eventuality related to an injury or sickness, one can opt for personal insurance. In this type of policy, the income that you would need to meet your requirements is identified first and you are covered by insurance accordingly.
Short-Term Disability Insurance
Short-term disability insurance covers a percentage of your salary should injury or illness prevent you from working beyond what you have available in sick leave. Duration of benefits is typically six months.
Accidental Death & Dismemberment (AD&D)
Typically, AD&D insurance is a rider on a basic life or health insurance policy and covers accidental death, loss of eyesight or loss of a limb. There are a number of limitations to the coverage that should be understood before purchasing; however, depending on your personal circumstances and risk, AD&D may be appropriate for you.
Business Canada Disability Insurance
This is best suited for business owners and aims to reimburse business loans and expenses. It also includes the hiring of a new employee to replace a disabled one, since this type of insurance aims to maintain the profit of the company in case of any disability-related mishap.
Long-Term Disability Insurance
Long-term disability insurance is designed to pick up where short-term disability policies leave off and will cover you for five years, ten years, or even longer. Ideally, the policy should cover you until age 65.
Four Essentials of Disability Coverage
Here are four essential things to know about your coverage:
Some plans start paying out within 30 days following an injury or illness, while others have a waiting period of six months.
If you are self employed and pay your own premiums, benefits are not taxable. If your employer pays the premiums, however, any income would be taxed.
Amount of Benefit
Some plans pay out more initially, and then reduce the amount. Others are indexed to inflation. Disability policies pay either a set amount or a percentage of your income, often ranging between 40% and 80%.
Duration of Benefit
Options generally range from two years to age 65, or retirement. Professional advice can guide you through the fundamentals of disability coverage or highlight how a plan can be tailored to your needs.