Disability Insurance: Do you have enough coverage?

The insurance industry in Canada much larger than most people think! According to the Canadian Life and Health Insurance Association (www.clhia.com), the annual premium paid for Life and Health-related insurance rose to over $83 billion in 2012. This includes over $16 billion for Life insurance specifically, and almost $31 billion for health and disability insurance. Based on a national population of 35 million people, that’s almost $2,500 in premium per person, per year!

In Canada, it is important to recognize that a significant portion of employees are offered (and covered by) group benefit programs through their employer. In the event that an individual is not covered through an employer-sponsored plan, many insurers offer individual coverage. In 2012, over 23 million Canadians were covered by health insurance, approximately 13 million had dental coverage, and just fewer than 11 million had disability income protection – this is all through private plans.

This is where, as individuals, we should consider the coverage that is being offered to us. Life insurance is a standard offering within a group benefit plan, as is healthcare (and drug) coverage. However, as you can see, it is not safe to assume that you are receiving disability coverage.

Disability insurance provides income replacement in the event of a temporary or permanent, sickness or injury. The plan will be structured in a way that is meant to pay you less than you would make, pre-disability; this provides what the insurer calls “economic incentive” to return to work as soon as you possibly can. Typically, the insurer will provide an overall maximum benefit, calculated as a percentage of your pre-disability, gross monthly income.

In many disability cases where there is an injury, there may be other insurance programs that will provide income replacement – for example, Worker’s Compensation, or perhaps an individual’s automobile insurance. For the entire duration of the disability, the group benefits provider will coordinate their payment with all other providers, limiting the total income replacement (usually) to 85% of the individual’s pre-disability net income.

Depending on your total annual compensation and your monthly expenses, your group insurance coverage may provide you with the opportunity to receive adequate income replacement in the event of a disability. At the same time, there is the possibility that the group plan does not provide sufficient coverage. Being unable to cover the expenses of your current lifestyle will only add stress during an already stressful time.

It is important for individuals to review their own financial situation on a regular basis with a qualified professional. Insurance and financial planning professionals will be able to assist you in determining an appropriate level of insurance coverage that is appropriate for you and your family’s situation.


David Maltman / Benefit Specialist / PEO Canada

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