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What Is Disability Insurance and Why Do I Need It?

on 20 Oct, 2018

What if something happens that prevents us from working for some time? It’s not a pleasant thought, but it could happen to anyone.

The good news is that various insurance companies have planned for this, even if we haven’t. They have created something called disability insurance.

We’ll do our best to explain “what is disability insurance?” in the paragraphs below.

What is Disability Insurance?

First thing’s first, what exactly is disability insurance? Disability insurance is a payment given out when an injury prevents the recipient from working. This differs from worker’s compensation in one critical way.

While worker’s compensation can only be filed for injuries that occur during work, disability insurance covers any injury that prevents you from working.

How Do I Get Disability Insurance?

Some apply for disability benefits through their employers, but this coverage doesn’t last as long as it should. Disability can be temporary, but even temporary disability often lasts for months and even years.

On the bright side, company insurance is a great way to start, because most people will qualify. Companies also tend to offer insurance cheaper than an independent agency would.

There is also something called Employment Insurance benefits, or EI, which is a sort of catch-all for those involuntarily out of work. The good news is that if you are injured or sick, you are eligible for a longer period of benefits than most, up to fifteen weeks.

There’s also a Canada Pension Plan, or CPP, which is a payment plan directed at those who are suffering from a long-term disability that keeps them out of work for extended periods of time.

A CPP carries the added benefit of money being paid out to children you’re currently caring for.

Your state or province may also offer certain benefits, so do some research on the disability services in your area. If you are a Canadian Indian, you may be able to get benefits through your First Nation.

Regardless of which policy you choose, it may be best to save up money as well. There are some things, such as psychology or dental work, that the Canadian health care system doesn’t cover.

EI or CPP

As great as EI and CPP are, they don’t pay out that much. The average payment for disability is roughly $900-$1000, while the average rent is several hundred dollars more.

Additionally, the benefits are reduced if they are used by someone under 65. This begs the question of what happens to those who suffer a disability at a young age or are born with a disability.

Parents can receive benefits for a child with a disability, but what happens when that child grows up?

Disability Insurance and Supplements

Disability insurance is useful, but it doesn’t come close to what most people’s usual wage would be. You will probably need an additional type of coverage to make sure that you are fully prepared should you need your benefits.

The good news is that these policies aren’t hard to find since most insurance companies offer them. Also, while disability benefits are limited, there are a lot of additional benefits and tax allowances that can help to even things out, such as a child tax allowance. There are also funds for those who are considered to be living in poverty.

However, the downside of independent insurance companies is that they don’t have to operate under the same rules as the government-run insurance companies.

Conditions and Qualifications

Like any other business, independent insurance companies are going to cater to the lowest risks. This means that people who are less likely to become disabled are going to pay less for their coverage.

To figure out how much you can expect to pay for your disability insurance, ask yourself the following questions.

  • How old are you? It’s no secret that the older we get, the weaker our bodies become. Because of this, older people are more likely to become injured and acquire a disability. This means that they are ultimately going to pay more for their insurance.
  • How healthy are you? Obviously, somebody with more health problems or a poorer condition overall will be more likely to face major health issues in the future. The cost for them will be higher than most.
  • How much money did you earn at your job? If you had a fairly high-paying job before the injuries occurred, you will need to pay more for your insurance. This is because the insurance will need to cover more than it would for the average person.
  • What exactly does your policy cover? As a general rule, the premium will be higher for a policy that pays out under a greater range of circumstances. For instance, if your policy covers injuries that only prevent you from doing certain jobs, your premium will be much higher.
  • How long can you expect to be disabled? Believe it or not, there is a thing called short-term disability insurance, which only covers injuries that keep you out of work for a short amount of time. The premium will go up for longer-lasting policies.

These are just a few of the things that will figure into what you can expect to pay for a premium.

Disability Facts

You’ve probably heard the phrase ‘this could happen to you’ so often that you no longer believe it. However, in the case of disability, the warning is all too true. Over one-tenth of the US population has a disability, and over half of those are working age.

In Canada, 43% of those with disabilities are at least 75.

Worldwide, over one out of every eight people has some form of disability. Another fact worth mentioning is that disability often comes with medical bills since the affected party now has to live with or recover from the condition that put them out of work.

Thankfully, this is less of a problem in Canada, where medical treatment is built into the tax system, so those with disability won’t pay as much in their lifetime. In America, this is more of an issue, but some hospitals have responded with programs that help to pay off or reduce medical bills.

There’s also the option of payment plans, so that you’re not forced to pay the medical bills all at once. Of course, there’s also health insurance to cover most of the costs.

Riders

Insurance policies offer a lot of potential add-ons and riders. Before buying any type of policy, it’s best to familiarize with some of these policies and what they do. Here are just a few of them:

  • Own Occupation: This rider ensures that you will get benefits if you are unable to work in your usual profession. This means that you can’t be denied because you technically could work in some professions.
  • Future Increase: This rider allows you to invest more into your insurance plan so it pays out more should you suffer a disabling injury or sickness later on.
  • Lifetime Extension: This means that your benefits won’t stop if you reach 65 years of age or retire.
  • Accidental Death Benefit: This rider makes it so that if an injury or illness kills you, or even lose your eyesight, hearing and limbs, your loved ones will receive a higher payout.
  • Automatic Benefits Increase: This rider causes your coverage to rise as your salary does. Keep in mind, this doesn’t necessarily have to do with cost of living. Simply put, higher-paying jobs will provide more insurance.
  • Cost of Living Adjustment: This means that your coverage will increase as rent and other prices do so that you don’t find yourself needing more than you’re getting paid.

Disability Insurance

What is disability insurance? Disability insurance is a form of insurance coverage that pays out in the event that you suffer a disabling injury or illness. There a few different places to get it and several ways to supplement it. The real question is what exactly do you need?

Regardless of your specific situation, you definitely need some kind of disability insurance. Disability happens to a lot of people, many of which, most of them, in fact, would otherwise be part of the current workforce.

If you want to know more about insurance and the various policy types, please visit our site. We can teach you how much homeowners’ insurance costs in Canada. This is just the tip of the iceberg. There are plenty of other types of insurance, and we can give you a crash course on all of them.

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