Disability Insurance: Cost, Benefits, Why You Need it

Disability insurance is a critical need for working-class citizens in Canada. One of the crucial assets that you may have is the ability to work and earn income. However, what if accidents happen and you lose your ability to work, even if it’s temporary? How will you able to earn income to support your basic needs? That’s where a disability insurance plan comes in.

A disability insurance plan provides a source of income to those people who can’t work due to an illness or accident. Take note that your earning power is one of your significant financial assets. 

Without a disability insurance plan, workers, including their dependents, are living on the edge. There’s the risk of losing investments, savings and even your home. In this blog, we will discuss the essential features of a disability insurance plan, how to choose one and the cost of getting one.

What is Disability Insurance?

Disability Insurance: Cost, Benefits, Why You Need itGenerally, disability insurance or income protection insurance covers some of your income if something happens to you, such as illness or injury that enables you to work. 

This plan doesn’t only cover accidents but also illnesses. Physical injuries, cancer and heart attacks are all considered disabilities. When health conditions like this leave you unable to work, disability insurance kicks in to cover all or part of your regular income.

Types of Disability Insurance 

Different types of disability insurance plans serve varying purposes. All disability insurance policies will provide you with regular payments if you become disabled. However, not all types of insurance plans are the same. Below are the different policies that you can get:

Short-Term Policy (STD)

An STD policy is made for temporary disabilities and is designed to replace 60-80 percent of your income for a short period. 

Usually, it is offered in 3-6 months timelines with a soft limit of a year. However, depending on the situation, it may kick in until you can resume work.

Long-Term Policy (LTD)

Disability Insurance: Cost, Benefits, Why You Need itAn LTD policy is designed to last for many years even until the retirement age. Typically, this type of disability insurance replaces 50-67 percent of your income. It kicks in in the event of a long term disability that leaves you unable to work.

Social Security Policy (SSDI)

SSDI coverage comes as part of your Social Security benefits. However, it is usually harder to qualify for than a disability policy purchased through work or individually.

Additionally, SSDI applicants have a higher chance of rejection. Furthermore, the benefits that come with a disability insurance plan in Canada are generally lower than private disability policies.

Getting a Disability Insurance Plan: What To Know

While disabled, an insured person may be eligible for benefits from other sources. Benefits payable under the disability insurance plan may be reduced by other sources of disability income, such as Social Security. Besides, disability benefits received from other employer-sponsored plans may lessen the benefits covered.

This insurance plan also has a so-called benefit period. There is a maximum period for benefits that will be paid for a single disability period. The benefit period can be as short as 13 weeks or as long as the retirement period. 

The longer the benefit period, the higher the cost of a disability insurance plan. This is because the potential liability to the insurer also increases. However, keep in mind that if you are close to retirement, you may only need a one or two-year benefit insurance plan. 

Thus, having disability coverage for a one or two-year plan may be essential to protect against short-term risks in your financial plan.

Benefit Limitations

Moreover, you should pay attention to scheduled or limited benefits based on specific types of disability. Some low-cost policies only offer benefits if your disability is due to certain kinds of accidents. 

Other plans may only pay a benefit if you undergo an operation related to an accident. Therefore, when getting a plan, make sure that it covers both accidents and illness. 

How Much Does Disability Insurance Cost?

The cost of disability insurance for short-term and long-term coverage can range from 1% to 3% of your yearly income. Let’s say you make $50,000 annually, so that’s $60 to $125 monthly, but you’ll pay less if you get a long-term plan with a more extended elimination period. 

Disability Insurance: Cost, Benefits, Why You Need itIf you can, get a “non-cancellable insurance policy,” it can’t be cancelled by the insurance company even if your health changes.

The two primary factors that significantly influence its cost are the definition of the disability and the elimination period. Take note that “own occupation” policies are more expensive because they kick in when you can’t perform the duties of the job for which you are trained. 

It means that even if you’re still able to do other types of jobs, but you can’t do your chosen profession, then you can obtain this insurance. 

Key Takeaways

You can easily get a disability insurance policy if your employer offers a long-term disability insurance plan. However, if they don’t, then you need to get one from an insurance company in Toronto. They can walk you through the process and help you get the right amount and type of disability insurance suited for your needs.  

If you are looking for a disability insurance plan provider, contact Life Insurance Direct. We offer different kinds of coverage to make sure our clients find a plan that fits into their specific needs. You may call us at 1-844-922-1392 or send us an email at info@lifeinsurancedirect.ca to book an appointment!

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