What is Disability Insurance?
Disability insurance can give you a monthly, tax-free income if a serious illness or injury stops you from working.
The exact amount you receive monthly depends on how much insurance coverage you buy. You can customize your disability insurance.
Your Western life insurance expert will take the time to explain disability insurance and how it can protect your family and your finances.
We’ll give you the information that you need to allow you to make an informed decision that works for you.
Here’s what you need to know:
What is Disability Insurance: Disability insurance replaces part of your income if you become injured, ill, or disabled and you are unable to work.
Disability insurance can help replace your income. There are additional policies that can be purchased to cover monthly payments such as your bills, monthly mortgage or rent, and living expenses.
It also helps protect your savings and what you are putting away for retirement.
Disability insurance can potentially replace up to 80% of your pay cheque, but typically it covers 60%.
Once you are unable to work, you file a claim, and you receive your monthly payments when the waiting period ends. The waiting period is the number of days from the date you’re disabled until the benefit start date.
Your disability payments stop when your benefit period ends, or you return to work.
What is short-term disability insurance?
Many full-time employees are offered disability insurance as a part of their benefits package with their employers. (EI can cover short-term disability, too, depending on your situation.)
Your employer may offer short-term disability that covers 60% to 80% of your lost income.
This may bring your income, while on disability insurance, closer to your current take-home pay, but it may not provide the level of protection needed to replace enough of your income.
Short-term disability coverage typically provides benefits for up to six months.
What is long-term disability insurance?
Long-term disability insurance can be offered by your employer, but the coverage may not be enough.
What you can do is opt to buy disability insurance. The benefits are paid typically for two years, five years, or 10 years, to age 65, or for life, or if you are able to return to regular employment, depending on the policy.
Long-term disability plans usually replace 60% to 70% of your pre-disability income.
The price of your long-term disability insurance plan is based on the amount of coverage you purchase, your age, gender, and occupation. The price of the plan will not increase during the term you choose.
Depending on the long-term disability plan you choose, you may have part of your income replaced for up to 2 years, or 5 years, or 10 years, up to age 65, or until you can return to regular employment, whichever comes first.
Long-term benefits have a waiting period, that typically begins after sick leave and/or short-term disability benefits offered by your employer end.
Disability insurance is considered a good investment for most people because it reduces the risk of financial setbacks if you become ill or disabled and can no longer work.
Ask your Western life insurance expert to explain long-term disability insurance to you.
There is also Canada Pension Plan Disability Benefits to consider for contributors to CPP who have found themselves no longer able to work due to personal illness or severe injury. It is paid to the individual until they reach the age of 65.
Are disability benefits tax free?
If you pay the entire amount of the disability premium yourself through insurance, your disability benefits will be tax-free.
If your employer pays all or part of the disability premium, your disability benefits will be subject to income taxes.
How much long-term disability insurance can I buy?
Typically, you can buy 60-80% of your monthly net income before tax as income replacement.
I am self-employed. Do I need disability insurance?
If you are self-employed, buying disability insurance helps protect you, your family, and your business. Usually, you do not have access to group long-term or short-term disability benefits.
It can replace part of your business income.
Without a disability insurance policy, that period without income could make it challenging to pay your bills and support your family.
Do I need a medical exam?
It depends on the plan, but most often if there’s an illness a medical exam is required.
How much does disability insurance cost?
You can expect to pay between one to three percent of your annual salary for disability insurance.
Disability insurance will cost more the longer you want to receive payments.
This type of insurance may be less expensive when you’re young. Your costs will be lower the healthier you are.
Discuss how much coverage you need with your Western life insurance expert.
How is disability insurance different from critical illness insurance?
Disability insurance replaces a substantial chunk of your income should you become injured or ill and unable to work. It provides you with consistent monthly payments while you recover or until your coverage period ends, whichever comes first.
Critical illness insurance pays you a tax-free, lump sum if you develop a specified illness or have treatment for your illness during your agreed-upon coverage period.
Plan how life insurance can meet your family’s needs
Life insurance is about protecting your family for the future and helping to meet their needs. As your circumstances change over the years, it’s a good idea to keep reassessing how your life insurance can protect your family.
Your Western life insurance expert can discuss with you how life insurance can help protect your family over the years.
Western Insurance has over 40 licensed LIFE INSURANCE EXPERTS across Canada. Our experts are available now in branch or on the phone to help you navigate the life insurance journey that will give you the right policy to protect yourself, your investments, and your family.
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