# disability insurance



## rookie (Mar 19, 2010)

I was in the process of purchasing term insurance and i was considering DI as well. i do have DI from the company's group plan. but my peeve is that it disappears as soon as i quit the company. so does it make sense to have a DI separately? 

after some research i saw that the DI premiums do increase with age. i do not understand what disability has to do with age and neither could my insurance agent help. any answers from experts?


----------



## OhGreatGuru (May 24, 2009)

It sounds counterintuitive when you consider that your probability of experiencing a 90 day or longer total disability actually declines with age, according to this chart from RBC.
http://www.rbcinsurance.com/healthinsurance/disability-insurance.html

I am not an actuary, but I suspect the length of time you pay premiums over your working life counteracts this risk though. The person who starts paying for this insurance at age 20 will have paid 25 years of premiums by the time he is 55: so how can a guy start coverage at age 55 at the same cost?


----------



## the-royal-mail (Dec 11, 2009)

Why are you concerned with this insurance disappearing when you leave the company?

Disability has a lot to do with age. How many seniors have you seen lately who are walking on their own without some sort of wheeled contrivance? How many 30 year olds have you seen with these same contrivances?


----------



## rookie (Mar 19, 2010)

the-royal-mail said:


> Why are you concerned with this insurance disappearing when you leave the company?
> 
> Disability has a lot to do with age. How many seniors have you seen lately who are walking on their own without some sort of wheeled contrivance? How many 30 year olds have you seen with these same contrivances?


the seniors i see on wheelchairs are well over working age and do not need insurance at that time. DI is basically to cover accidental injuries that would prevent me from earning my livelihood. in my profession, i can still be on a wheelchair and earn my livelihood.


----------



## the-royal-mail (Dec 11, 2009)

Hmmmm. Well, thinking this through....your expression "earning my livelihood" is ambiguous. If you are employed by a company (you said you are) that gives you these benefits, then you are covered there. If you are laid off at anytime then you will be collecting UIC until you get back to work. Your next job will most likely have some form of short and long term disability plan available to you and included. 

The only risk is if you are self employed in which case yes, if this worries you, you can get some insurance coverage (it will be expensive) after you take on a contract job which offers no LT or STD.

If you are in a car accident and you become disabled, your policy should cover some of this BUT read your policy about this and understand what you will have available to you.

Otherwise you don't need it IMO.


----------



## rookie (Mar 19, 2010)

the-royal-mail said:


> Hmmmm. Well, thinking this through....your expression "earning my livelihood" is ambiguous. If you are employed by a company (you said you are) that gives you these benefits, then you are covered there. If you are laid off at anytime then you will be collecting UIC until you get back to work. Your next job will most likely have some form of short and long term disability plan available to you and included.
> 
> The only risk is if you are self employed in which case yes, if this worries you, you can get some insurance coverage (it will be expensive) after you take on a contract job which offers no LT or STD.
> 
> ...


thanks. i think u summarized it right. i need to check what kind of disability payout i have with my car insurance. i think the only risk i see is if i quit my job and take on contracts or become self employed. i was wondering what the other people's views are on this and how you guys have disability coverage.


----------



## Four Pillars (Apr 5, 2009)

I was under the (hopeful) impression that you can continue any insurance (disability, life) that you have under a group plan at work if you leave the company. You would move to a private plan which might be more expensive but you won't have to requalify or anything.

Does anyone know if that is pure fiction?


----------



## the-royal-mail (Dec 11, 2009)

I think you can order your own disability insurance through companies like Flex Care. But the way I understand it is that you need to answer a lot of health history questions (and you must be honest, they check) and if you actually do need to make a claim you'll be constantly justifying your disability to continue getting paid. This isn't a ride on easy street and if your contracts are short term and isolated over the course of your life, it may not be worth the bother and expense. 

Also, this isn't anything you really need to prepare for. A lot of companies that hire contract employees do have a disability insurance carrier they work with, so wait until you sign a work contract, then inquire with them about this type of plan.


----------



## the-royal-mail (Dec 11, 2009)

Four Pillars said:


> I was under the (hopeful) impression that you can continue any insurance (disability, life) that you have under a group plan at work if you leave the company. You would move to a private plan which might be more expensive but you won't have to requalify or anything.
> 
> Does anyone know if that is pure fiction?


I think it is. I've never heard of this. When you leave the company, your benefits cease. Only exception I can think of is retiring with a pension plan.


----------



## MoneyGal (Apr 24, 2009)

Not fiction. Most plans offer employees who leave the opportunity to continue their benefits, so long as the election to continue is made within 30 days of your last day of employment. (It depends on the plan, the status of the employee, etc.)

As one purely random example, here's the info from Sun Life.


----------



## OptsyEagle (Nov 29, 2009)

1st of all, if you already have group insurance, the amount of coverage you could get will be reduced by that amount. This is to ensure that your are not insured for more than 85% of your earned income. Of course, this is to ensure that you still have some motivation to go back to work in the event of a disability.

2ndly, I do not know exactly what the RBC statistics are referring to, perhaps the fact that if you are 25 you have 40 years to come up with a disability as opposed to someone 55 only has 10 years to get disabled before 65. In any event, I can assure you that the probability of a disability at any time, lasting longer than 90 days, significantly increases as you get older. This has to do with the bodies deterioration over time and its succeptability to sickness as well as its slower rehabilitation rate in event of injury.

3rdly, as for portability of group insurance. This is almost 100% true with life insurance but I don't think it encompasses disability insurance very often.

Lastly, personal DI is fairly expensive, depending on your occupational class. Easily 3 to 6 times more expensive then group insurance, so you may need to ask yourself, how much of this stuff do you really want. Well worth the money if you have none, but pretty expensive if only for a top up.


----------



## rookie (Mar 19, 2010)

thanks for the summation. i will stick to my money in my mouth...


----------



## perry15 (Jun 18, 2010)

Hello Friends......

Individual disability insurance is truly a basic concept. It is an insurance product designed to replace anywhere from 45-60% of your gross income on a tax-free basis should a sickness or illness prevent you from earning an income in your occupation. Every disability insurance policy from every insurance company is very different, this is not a product to simply shop for the most competitive rate. To buy the cheapest disability insurance policy on the market is to throw money away. The odds of getting paid a monthly benefit under a cheap contract may be significantly lower than receiving benefits from a quality contract

Thanks


----------



## wheel (Jun 22, 2010)

I think there's some important points being glossed over/missed.

Disability insurance is not just disability insurance. Some very important things to look for are:
- indexing of benefits. Not important if you're disabled for a couple of years. If you're permanently disabled for 20 years, indexing of benefits is vital. You can add this as a rider.
- own occupation/any occ. This gets a bit technical, but it kind of boils down to, if you can't do your current job but can do something else, are you disabled? A lot of folks want benefits that are 'own occupation' so if you can't do what you're doing now, you're effectively disabled.
- duration of benefits. This is the red alert button right here. You become permanently disabled. Now how long do you want benefits for? 2 years and then it's time to start enjoying the taste of kibble? 5 years? Or to age 65? A 2 year benefit policy will be cheaper than to age 65 - but IMO a 2 year policy is deficient in most cases.

Now here's where some of these posts have gone astray. Your 'work' policy, how long are benefits for? 2 years is common. If you become permanently disabled, you're going to have no benefits after 2 years. The problem is not duplicate coverage (coordination of benefits) or overinsurance. The problem is that work policies frequently only provide benefits for 2 years. It's dirt cheap, and nobody asks about it until afterwards.

There's a halfway solution for those in that situation that are concerned. You can purchase an individual 'wrapper' policy with benefits to age 65...but a 2 year waiting period. So if you become disabled, your work policy provides benefits for the first couple of years, then your individual policy kicks in for years 3+. better coverage and you get to keep the 'cheap' work policy.


----------



## rookie (Mar 19, 2010)

hmm. i just pulled out the disability section of my company group insurance and there it was indeed in black and white - "upto 2 years" staring boldly at me 

can you provide more details on what this wrapper policy is called and where i can get some unbiased quotes?


----------



## MoneyGal (Apr 24, 2009)

AFAIK it's just a regular DI policy with a 24-month waiting period. 

Canada lags behind the U.S. in providing quote info. Again, AFAIK you can only get quotes from an agent or broker. I'm not sure what you mean by "unbiased" but if you want quotes from more than one company, use a broker who works with more than one company (as opposed to a captive agent from one company). 

As for inflation protection: expect your benefit amount to be reduced by about 25% to cover the cost of inflation. Note also that you need to be clear about what is being provided: an actual CPI-linked increase, or a COLA increase by some specified amount no matter what CPI does (i.e., you have a 2% COLA increase every year whether CPI is 0% or 12%). 

Finally - because I'm not sure this has been really discussed in the thread so far - DI policies will cover you to age 65. It is assumed you will make provisions for retirement income separately.


----------



## wheel (Jun 22, 2010)

MoneyGal said:


> AFAIK it's just a regular DI policy with a 24-month waiting period.


Yes, that's what I meant. Folks tend to grasp wrapper policy easier than calling it a 720 day waiting period is all.



> As for inflation protection: expect your benefit amount to be reduced by about 25% to cover the cost of inflation.


Not sure what this means, unless you're suggesting that if you buy $1000 of coverage today, when you become disabled it will actually be $1000, but really only worth $750 in today's dollars. 



> Note also that you need to be clear about what is being provided: an actual CPI-linked increase, or a COLA increase by some specified amount no matter what CPI does (i.e., you have a 2% COLA increase every year whether CPI is 0% or 12%).


I wouldn't worry about it. Every type of COLA is vague at best anyway when it comes to actual implementation (from a 'does it actually cover cost of living increases). If you're going to suggest that you want CPI as COLA, then you're implying that CPI is an accurate representation of cost of living increases- and there's lots of people who disagree with that suggestion. CPI is only one measurement and likely no better or worse than others.

What's of primary importance is 'any' type of COLA, The exact definition is relatively insignificant. If cost of living goes up 3.5% and CPI goes up 3.2%, then you're still short .03% in your benefits. If you don't have any COLA, then you're short the full 3.5% - and that's the real issue. here. Being ahead or behind in benefits of fractions of a percentage isn't something I'd worry about - particularly when you can't change the way any company defines COLA. 

In short, CPI is fine. But I wouldn't love it so much that I want to marry it or anything .


----------



## rookie (Mar 19, 2010)

MoneyGal said:


> AFAIK it's just a regular DI policy with a 24-month waiting period.
> 
> Canada lags behind the U.S. in providing quote info. Again, AFAIK you can only get quotes from an agent or broker. I'm not sure what you mean by "unbiased" but if you want quotes from more than one company, use a broker who works with more than one company (as opposed to a captive agent from one company).
> 
> ...


of course, DI is supposed to replace my income and so would expect to receive it only till age 65. now, does anyone in the forum have this kind of insurance?


----------



## MoneyGal (Apr 24, 2009)

Thanks, Wheel! 

What I meant was that you should expect roughly 25% more in year one income from a non-indexed policy than from an indexed policy. The idea is just to give some sense of the "cost" of indexation...and my examples are mostly drawn from the world of annuities. 

Totally agree on the CPI thing (in the sense that CPI is by no means necessarily a good index of your individual spending habits and preferences). We talk about "CPI-ME" and "CPI-YOU" in my office. 

As for Rookie's question: yes, I have privately-purchased individual DI coverage, as does my husband.


----------



## rookie (Mar 19, 2010)

MoneyGal said:


> Thanks, Wheel!
> 
> As for Rookie's question: yes, I have privately-purchased individual DI coverage, as does my husband.


Gr8. what kind of premium am i looking at to replace an after tax income of lets say 50k.


----------



## MoneyGal (Apr 24, 2009)

Totally depends on your underwriting status and the riders you select: principally own occupation versus "any occupation," and the length of the delay period. (As well as the amount of income you want to replace. By the way, if you do not deduct the premiums - presuming you are self-employed and have a way to deduct them - the income received is not taxable.)


----------

