Disability insurance - insuring your $2 million asset

What would happen if you were to get sick or have an accident that prevented you from working? What if this prevented you from working at your current job for the rest of your life? How much do you think you're worth? You have a lot of earning potential: a 35 year-old earning $50,000 will earn over $2 million until retirement (assuming 30 years of work and 2% increases each year). Check your figure here.

If you are employed, you likely have a Group Health and Dental Plan. This may have group disability coverage included (that you pay for). Some factors you want to check:

  • Are you paying for it? If your employer is paying the cost and not making it a taxable benefit, any income you would receive from the plan would be taxable. Make sure you are paying the cost or it is listed as a taxable benefit.
  • How much are you covered for? Generally, you are eligible for up to 66.67% of your gross monthly earnings. However, the insurers have a maximum amount you qualify for without medical evidence. Usually this is around $1,500/month. Check to make sure you have as much as you are eligible for - to receive the additional amount, you need to complete a medical questionnaire (in some cases you may need to have a nurse's visit).
  • What are the definitions on the plan? Most group plans have a "regular occupation" definition for the first two years: you are unable to perform the duties of your job as it is normally performed. After two years, the definition is more restrictive: "Total disability means that, due directly to injury or sickness, the insured is unable to perform the important duties of any gainful occupation for which he/she is reasonably qualified, based on his/her education, training, or experience, and the insured is receiving the appropriate care and attendance of a physician who is licensed to practice in Canada." This means that is you are unable to do your job, but you can do another job, you will cease to receive monthly benefits.
  • If you are self-employed or do not have group insurance, you should consider individual disability insurance. The cost could be roughly 3-4% of your gross income (after expenses) but will depend on the amount and features chosen. You should get enough to pay your monthly expenses.

    If you are employed and you want more than your group insurance provides and/or you want stronger definitions (ie. "regular occupation" after two years), you can get a "top-up" policy.

    If you're insuring your car, house, belongings, etc. why aren't you insuring yourself against financial loss?