What is Disability Insurance?

There are insurance policies that cover property: home, car, cottage etc. (also called P&C insurance, which stands for property and casualty) and insurance policies that cover the life and health of a policy holder (life, disability, critical illness, etc.).

People usually understand what life insurance is and how it works, but are confused when they have to deal with disability or critical illness insurance. This article will focus on disability insurance and a few of the things that make this type of policy so important.

Disability Insurance: How Does It Work?

Unlike many other types of insurance, such as life insurance and critical illness insurance that provide a lump sum payment after an approved claim, disability insurance provides ongoing income for as long as you are unable to return to your job. The purpose of disability insurance is to protect you financially while you are recovering after an accident.

There are two major types of disability insurance:

• Traditional disability insurance comes with a medical assessment (medical exam), a medical questionnaire, and is a good option for those in good health. Insurance rates and quotes in this case are better than for no medical disability insurance (which is discussed in more detail below). It is important to mention that disability insurance uses stricter underwriting (has more assessment rules than life insurance).
• No medical disability insurance, also known as simplified issue or guaranteed issue insurance, always comes without a medical exam. Simplified issue has a basic medical questionnaire and guaranteed issue has neither a medical exam nor a medical questionnaire. The downside of no medical policies is their higher insurance rates and many limitations, in terms of coverage/exclusions. This type of insurance is for when you have serious health pre-conditions that do not allow you to qualify for traditional disability insurance.

When Do You Need Disability Insurance?

Disability insurance is good additional piece of protection for most Canadians, especially if they know that other insurance coverages will not fully take care of their income should something happen to them. In reality, there are often a few security nets that will help you if you are confronted with disability.

Even if you have workers compensation or a group insurance policy through your employer, the benefit may be just a fraction of your usual income, leaving you with a serious gap that can lead to severe financial distress. If you work for a smaller company that offers you a solid salary but does not have good benefits (e.g. low coverage limits on a group policy or no group disability coverage), you should consider getting an individual disability insurance policy.

Attention: In some cases, it is not easy to demonstrate your existing regular income, especially if you have your own business. This could lead to difficulties in getting a disability insurance policy. Speak with a broker that knows which insurers are more receptive to self-employed entrepreneurs.

A Few Important Aspects of Disability Insurance to Know

Ability to add up policies: You cannot have several disability policies in hopes of adding them up to get more payouts than you actually earn! Disability insurance is designed to compensate for your missing income, and not to enrich.

Claims timelines: Normally there are deadlines for submitting disability insurance claims; make sure that you do it as soon as possible – otherwise an insurer may refuse to pay it.

Payment timing: Do not expect that you will get disability benefits paid out immediately after the accident. Payments can start as late as 90 days after an approved claim – or even later. If you get disability insurance through work, that claim may have to be processed and paid out before your induvial policy goes into action. Speak with a broker on how to best structure your disability insurance, especially if you have an additional policy through work. A broker will make you aware of any limitations on the timing of the payouts, and how best to address them.

Pre-conditions and disability insurance: Do not automatically go for a no medical disability insurance quote if you have a health pre-condition. Some insurers are more flexible than others and can offer you traditional disability insurance at a higher rate, but still a cheaper rate than no medical disability insurance.

Disability Insurance – Last Words

Typically, disability insurance quote rates are higher than for a large life insurance policy, but these are completely different products: one protects your loved ones upon your death and the other protects your financial independence while you can not work.

If you are looking for a disability insurance policy, we suggest working with an insurance broker who has access at least to 10+ insurance companies providing disability insurance policies – that allows him/her to get disability insurance from different providers and offer you the best option.