Disability Insurance is a form of insurance policy that insures the beneficiary’s earned income against the risk that a disability creates a barrier for a working individual to complete the core functions of his or her job. Your earning potential is a far more valuable asset than your car or even your home. The lifestyle you enjoy, your children’s college education, and your savings for a comfortable retirement all depend on your ability to earn a living. Disability insurance is designed to protect you from the possible loss of income.
Protecting your income is protecting your lifestyle.
If you were suddenly unable to work and had less money coming in – plus additional money going out to cover medical expenses and other bills related to your disability – where would the money come from to replace your lost income? You might say yes, it’s good, but what is the possibility that disability could happen? It is more than you would imagine. Please take a moment to look through the information that we have gathered for you… and then it’s up to you to have disability insurance or not.
Living within your income is complicated. Consider living without it.
Types of Disability Insurance
Those whose employers do not provide benefits, and self-employed individuals who desire disability coverage, can purchase disability insurance policies. Premiums and available benefits for individual coverage vary considerably between insurance companies, occupations and other factors. In general, premiums are higher for insurance plans that provide more monthly benefits, offer benefits for longer periods of time, and start payments of benefits more quickly following a disability claim. Premiums also tend to be higher for policies that define disability in broader terms, meaning the policy would pay benefits in a wider variety of circumstances.
High-limit disability insurance is designed to keep individual disability benefits at 65% of income regardless of income level. Coverage is typically issued supplemental to standard coverage. With high-limit disability insurance, benefits can be anywhere from an additional $2,000 (or much more) per month. Traditional disability carriers have limitations on the monthly benefits, which limit benefits for high income earners. Benefits typically cap at $20,000-$25,000 of monthly benefits. Single policy issue and participation (individual or group long-term disability) coverage has gone up to $30,000 with some insurance companies.
Key Person Disability Insurance provides benefits to protect a company from financial hardship that may result from the loss of a key employee due to disability. The company can use the benefits to hire a temporary employee should the disabled employee’s disability appear to be short-term. In the case of permanent disability, benefits are used to help defray costs related to hiring a replacement, including recruitment, training, startup, loss in revenue and unfunded salary continuation costs.
Business Overhead Insurance coverage reimburses a business for overhead expenses should the owner experience a disability. Eligible benefits include: rent or mortgage payments, utilities, leasing costs, laundry/maintenance, accounting/billing and collection service fees, business insurance premiums, employee salaries, employee benefits, property tax, and other regular monthly expenses.
One of the most common reasons for disability is on-the-job injury, which explains why the second largest form of disability insurance is that provided by employers to cover their employees. There are several subtypes that may or may not be separate parts of the benefits package: workers’ compensation and more general disability insurance policies.
Workers’ compensation offers payments to employees who are (usually temporarily, rarely permanently) unable to work because of a job-related injury. However, workers’ compensation is in fact more than just disability insurance, because it compensate for economic loss (past and future), reimbursement or payment of medical and like expenses, general damages for pain and suffering, and benefits payable to the dependents of workers killed during employment (offering a form of life insurance). Workers compensation provides coverage for employees. Statistics have shown that the majority of disabilities occur while the injured person is not working and therefore is not covered by workers’ compensation.
Disability Insurance Claims
The important variables regarding claims are listed below. Not every variable matters to every type of disability insurance, but most of these are generally relevant.
- Was the disability unpredictable (not resulting from previously-known chronic illness)?
- Was the disability incurred in the course of performing job-related duties?
- How long is the waiting period before claim payments start?
- What other insurance policies will pay claims for this event?
- How much money will be paid per week/month/pay period?
- For how many weeks/months/pay periods will payments continue?
- What if the beneficiary is not totally disabled, but only partially?
Do you want to keep your lifestyle when you retire? What about your lifestyle if you’ll have to retire earlier for mishap of disability?
Disability Rates, by Age and Sex in Canada, 2006
Source: Statistics Canada, Participation and Activity Limitation Survey, 2006. In Canada, the total disability rate for males is 13.4% and for females is 15.2%. Just because you stop working doesn’t mean you stop loving your wife and children
Types of disabilities among adults
Statistics Canada identifies the following types of disabilities in adults (15 years of age or older):
- Hearing: Difficulty hearing what is being said in a conversation with one other person, in a conversation with three or more persons, or in a telephone conversation.
- Seeing: Difficulty seeing ordinary newsprint or clearly seeing someone’s face from 4 meters away (12 feet).
- Speech: Difficulty speaking or being understood.
- Mobility: Difficulty walking half a kilometre or up and down a flight of stairs, about 12 steps without resting, moving from one room to another, carrying an object of 5 kg (10 pounds) for 10 metres (30 feet) or standing for long periods.
- Agility: Difficulty bending, dressing and undressing oneself, getting into or out of bed, cutting own toenails, using fingers to grasp or handling objects, reaching in any direction (for example, above one’s head) or cutting own food.
- Pain: Limited in the amount or kind of activities that one can do because of a long-term pain that is constant or reoccurs from time to time (for example, recurrent back pain).
- Learning: Difficulty learning because of a condition, such as attention problems, hyperactivity or dyslexia, whether or not the condition was diagnosed by a teacher, doctor or other health professional.
- Memory: Limited in the amount or kind of activities that one can do due to frequent periods of confusion or difficulty remembering things. These difficulties may be associated with Alzheimer’s disease, brain injuries or other similar conditions.
- Developmental disabilities: Cognitive limitations due to an intellectual disability or developmental disorder such as Down’s syndrome, autism or an intellectual disability caused by a lack of oxygen at birth.
- Psychological: Limited in the amount or kind of activities that one can do due to the presence of an emotional, psychological or psychiatric condition, such as phobias, depression, schizophrenia, drinking or drug problems.
- Other: The type of disability is ‘other’ if the respondent answered YES to the general questions on activity limitations, but did not provide any YES to the questions about type of disability that followed.
It’s hard to make a living. Do you think it’s easy to live without a living?
Disabilities related to pain, mobility and agility are the most common
Problems related to pain, mobility and agility affect the largest number of adults 15 years of age or older. Close to 3 million Canadian adults (approximately 11% of the total population aged 15 and over) reported one of these limitations. Not only are these the most prevalent disabilities, many of these Canadians experience more than one of these problems. Problems related to mobility, such as walking, climbing stairs, or carrying an object a short distance, are often associated with agility problems or with pain. Approximately 70% of Canadians who reported one of these three disabilities were also affected by the other two.
Women are more likely to experience pain and mobility limitations
For all age groups, women were more likely to have a disability related to pain or mobility. With the exception of the youngest age groups, this is also true for disabilities related to agility. In 2006, among adults 15 years of age or older, women with disabilities related to mobility, pain or agility represented slightly more than 13% of the Canadian population, whereas men represented slightly over 9%. Interestingly, not only do the rates tend to increase with age, the gender gap does as well. For example, 38.5% of women aged 75 or older stated that pain limited their daily activities, whereas only 28.8% of men in the same age group made the same statement.
Over a million adult Canadians have a hearing disability
With respect to sensory disorders (seeing, hearing or speech), approximately 1,265,000 adults (5.0%) reported that they had a hearing disability. Close to 815,000 (3.2%) adults had seeing disabilities and about 480,000 (1.9%) stated that they had a speech disability. The rates of sensory disability are similar for men and women until the age of 65 and over. Women aged 65 and over (10.1%) are more likely than men (7.8%) to have a seeing disability.
Nearly a half of a million Canadians report less visible disabilities
In 2006, Statistics Canada attempted to distinguish and recognize less visible types of disabilities such as those associated with psychological problems, memory, learning difficulties, and developmental disabilities. These types of disabilities are subject to special challenges in data collection as the measurement of these types of disabilities is based on the subjective perception of the respondent. This being said, in 2006, about half of a million adults 15 years of age or older reported disabilities of an emotional, psychological, or psychiatric nature (2.3%), memory problems or periods of confusion (2.0%), and learning disabilities (2.5%).
The prevalence of most types of disabilities increases with age
As indicated by overall disability rates, most types of disabilities increase with age. In 2006, this proved to be true for disabilities associated with mobility, agility, hearing, seeing and pain. Thus, while disabilities related to mobility are present in less than 2% of Canadians between the ages of 15 and 24, they affect about 44% of people aged 75 and over. Despite being much less pronounced, the increase in prevalence according to age is also present in memory and speech disorders. In both cases, the percentage of Canadians reporting these limitations rise from about 1% of adults between the ages of 15 and 24 to around 5% in those aged 75 and over.
However, this pattern is not seen for all types of disabilities. For example, disabilities associated with emotional, psychological, or psychiatric problems peak at 3.3% for adults aged 45 to 64 and then decrease in proportion to 2.1% for adults aged 75 and over. Learning disabilities do not fluctuate significantly by age, nor do developmental disabilities. In fact, developmental disabilities show a decrease with age. This may be because Canadians living in institutions were not included. As a result of the de-institutionalization that has occurred in Canada in the last thirty years, it is possible that more young people with developmental disabilities live at home and are therefore captured in the survey.
You don’t buy disability insurance because you may become disable; you buy it to make your family able to keep on living their lifestyle
Learning disabilities also increased in adults between 2001 and 2006
The disability rate for adults rose from 14.6% in 2001 to 16.5% in 2006. The rates for the majority of disability types increased. The exceptions were psychological and developmental disabilities, and disabilities related to memory. The increase was especially important for learning disabilities. Learning disabilities are not more common in people as they age. Thus, population aging has no effect on the number of learning disabilities, unlike such disabilities as mobility, agility and pain that become much more common in an older population.
Most adults with disabilities have multiple disabilities
In fact, 81.7% of adults living with disabilities have several, as opposed to only 18.4% who report having just one disability.
Severity of disability in 2006: mild, moderate, severe and very severe
The severity of a disability can have profound effects on the types of limitations experienced by a person with a disability. The 4.2 million adults with disabilities were separates into four levels of severity: mild, moderate, severe and very severe.
The level of severity depends on the frequency and intensity of the limitations associated with the disability. Thus, the severity of a disability can be driven by two factors, the cumulative effect of multiple disabilities or the overall effect of one significant disability. For example, a person who has no difficulty walking and climbing stairs but cannot stand in line for more than twenty minutes would have a mild mobility-related disability. A person who can only move around in a wheelchair would have their mobility more severely limited, and one who is bedridden for a long term period would have a very severe mobility-related disability. The levels of severity for individual disabilities are combined to provide a measure of the overall level of severity.
There are ten types of disabilities among adults and the level of severity will increase with the number of disabilities affecting each individual. Mild disabilities were the most common in Canada for 2006 with slightly more than one third (35.4%) of adults with disabilities experiencing mild limitations. Conversely, approximately one in eight (13.5%) adults with disabilities reported having a very severe limitation. This group grows to nearly 40% of adults with a disability when the severe and very severe categories are combined. Mild limitations were more common for men (37.9%) than women (33.4%). Conversely, women were more likely to report severe or very severe limitations (42.2%) compared to men (36.9%).
Nearly 2 million Canadians aged 15 and over have a severe or very severe disability
1.7 million people, or 6.6% of Canadians aged 15 and over had a severe or very severe disability. Moderate disabilities were reported by 4.1% of Canadians aged 15 and over (1,045,500 people) while 5.9% of that age group indicated a mild disability (1,492,580 people).
The most common form of disability among working-age adults are activity limitations related to pain
Pain and discomfort is the most common activity limitation for the working-age population with disabilities, affecting three out of four persons (74.4%). Looking at all working-age Canadians, this indicates that 8.6%, or 1.8 million persons, experience pain and discomfort-related disabilities.
Women are more likely to report activity limitations related to pain and discomfort
Pain and discomfort-related activity limitations are much more common for working-age women than for men. 79.0% of working-age women with disabilities reported pain-related limitations, compared to 69.3% of working-age males with disabilities. Looking at the Canadian population as a whole, 9.5% of working-age women report activity limitations related to pain versus 7.6% of males.
Pain and discomfort-related activity limitations can be constant or cyclical
Pain and discomfort can be a constant or cyclical part of many people’s lives. Overall, 72.1% of working-age people with pain-related limitations experience pain constantly while the remaining 27.9% experience recurring or cyclical episodes of pain.
One in three Canadians aged 65 and over experience mobility limitations
The profile of people with disabilities changes as age increases; disability types that were prevalent at younger ages are replaced by different disability types, and the severity of the disability increases. This is not surprising given that older people experience increasing limitations to their daily activities due to declining health. For people with disabilities aged 65 and over, three out of four people (76.4%) reported a mobility limitation, replacing pain as the most common limitation. Considering Canada as a whole, more than 1.3 million people or 33.1% of all Canadians aged 65 or over reported a mobility limitation
Mobility limitations are more common for older women
Women aged 65 and older are more likely to report mobility limitations than their male counterparts, with 37.2% of all women in Canada aged 65 and over reporting mobility limitations compared to 28.1% of men.
Memory difficulty is the most common non-visible limitation for older Canadians
Activity limitations related to memory difficulties are the most common non-visible limitation reported for people aged 65 and older, affecting 10% of all persons with disabilities in this age group. Overall, 4.3% of Canadian seniors experience activity limitations related to memory difficulties. As well, the frequency of reporting memory limitations increases with age all the way up to the 85 and over age group.
One ordinary father can support three children, but it takes three extraordinary children to support one father
Why should you consider a personal disability insurance plan?
A serious illness or sudden accident can happen in an instant – leaving you unable to work and earn money. While your other health insurance can help with the medical bills, you may need disability income protection insurance to help replace lost income. If you lost your ability to earn an income, you could also lose the lifestyle you have created for yourself and your family.
- When you protect your income, you can help protect your lifestyle.
- Worker’s Compensation only covers work related accidents.
- Even if you already have some disability insurance through your employer, it may not be adequate.
- If you ever change jobs, your employer-sponsored disability insurance will most likely end with your employment.
- Your other health insurance can help with the medical bills. But to replace lost income, you need disability income protection insurance.
- Unemployment insurance only covers 15 weeks.
- Disability benefits under the Canada Pension Plan (CPP) limit the benefits you can receive. Also consider the probability of incurring a 90-day or longer total disability prior to age 65.
- Group and association coverage can fill a valuable role in long-term disability protection. However, the benefit may be limited by the definition of disability and coverage amount.
- The benefit received in case of claim is not taxable.
- For self-employed people or for those who is working by a contract, there is no protection at all.
Remember, a custom designed individual disability insurance plan will provide you with guaranteed coverage and guaranteed premiums. When you imagine life without your income and the odds of becoming disabled at some point in life – disability income protection insurance makes sense.
What disability insurance can cover?
Different insurance companies offer different insurance plans that can help you preserve your income in case if you become disabled. There is a range of benefit and premium options to suit your particular situation: age, sex, occupation, smoker/non-smoker, income level and other factors. The maximum insurance coverage is to provide a certain percent of income, determined at the moment of signing the contract, usually 65-75%. Your monthly payments will depend not only on coverage, but also on other conditions such as:
- Occupation: obviously, it is more expensive to insure a truck driver than an accountant.
- Age: the older you are the more expensive the insurance is.
- Sex: disability insurance is more expensive for women (see the statistics above).
- Disability insurance is cheaper for non-smokers.
- A waiting period (elimination period): how many days must elapse before disability benefit payment become payable – 30, 60, 90, 120, 180, 360, or 720 days. The longer the elimination period the cheaper the monthly payment. However, it may be crucial to have the benefits paid from the first day, especially if there are no reserve funds for a rainy day.
- A benefit period: for how long an insurance company is going to pay you in case of your disability: 2, 5, 10 years or until 65 years of age. The longer the benefit period the higher the monthly payment.
Depending on the plan you select, your coverage can include:
- Your choice of benefit periods, so you can select how long you will receive benefits
- Your choice of elimination periods, so you can choose how soon you will begin to receive benefits after the disability occurs
- Your choice of premium options, to fit your budget or career stage
- Total disability benefits in case if you are unable to work at all
- Partial disability benefits if disability prevents you from earning your full income
- Return to work benefits that can help you get back to full-time work
We all know that accidents and illnesses are facts of life. They could happen to anyone anytime. Disability insurance can provide you with financial security by replacing a portion of your earnings when an accident or illness causes you to become disabled and unable to work or earn an income.
NOTE: For self-employed people, there are specially designed insurance plans. Please check the Insurance for the Self-Employed section of our website.
It worth to remember: disability insurance has various options and conditions, including specific limits on the amount of disability coverage. If you are covered under more than one insurance plan, such as group insurance and private disability insurance, in most cases, only one of them will pay.