Disability Insurance is primarily intended for the self-employed and independent contract workers who can not afford to miss extended periods of work and are not covered by an employer’s insurance policy.
Whether you are a sole owner or have a partner, the financial risks to your business and family are very significant if you suffer a serious accident, injury or illness that prevents you from working for an extended period of time. Not only does your current income stop, future income also stops and, in most cases, many of the business and personal expenses continue. There are leases, loans, salaries and other commitments to be met and no income.
If you have Workers Compensation, it will pay a percent of your income but only 8% of disabilities are covered by workers compensation as the accident occurs off the job or it is an illness. These payments will likely be less than what you will need. One of the leading causes of divorce is the financial stress that accompanies a long-term illnesses.
Disability insurance is designed to protect your income. Be careful picking a plan in your first year in the field as when you are starting out, there is no income to protect. Consequently, you will only qualify for a minimal amount – likely $1,000 per month or less. Be careful as there are policies available for whatever amount you want up to $3,000 or more per month but they do an income test at time of claim and look at what your actual income was and they only pay out about 66% of this income regardless of the amount you were paying.
Consider purchasing a personal disability policy at least one year before you are planning to go out on your own based on your income at that time. The need for a year is that most applications ask a question concerning your intention to leave the current employment within a year – provide a yes answer and you do not get the insurance. Ensure it is the type of policy where coverage continues if you change jobs in the future and the monthly benefit coverage is underwritten when you purchase the policy. This means they will pay what you have purchased and the insurer will not do an income check at time of claim. Be sure to inform your insurance broker about your long-term employment plans.
Consider whether you want to wait 30, 60, or 90 days before payments start. The premiums for a policy that pays after 30 days are about twice the cost of a policy that waits 90 days. A broker with expertise in disability insurance can help you think through this important decision.
Важный момент, влияющий на стоимость страховки это срок начала выплат по контракту. Он может составлять 30, 60 и 90 дней. Размер регулярных платежей за 30 дневный период начала выплат может быть в два раза выше 90-дневного
Some disability insurance policies will cover business expenses like leases and loan payments. This rider can be added regardless of your income level. Some also allow you to add a rider that will continue to make contributions to your RRSP if you are disabled which can be critical to your retirement and long-term financial picture.
Chances to become disabled:
It Could Happen To You!
| Your Age |
Chances of Being Disabled (past 90 days) |
Average Duration of Disability (past 90 days) |
25 |
58% |
1.2 years |
30 |
54% |
2.5 years |
35 |
50% |
2.8 years |
40 |
45% |
3.1 years |
45 |
40% |
3.2 years |
50 |
30% |
3.1 years |
55 |
25% |
2.6 years |
60 |
14% |
1.6 years |
Source: Commissioner's IDA Morbidity and Commissioner's SO Mortality Tables, Society of Actuaries.
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