You have group disability insurance at work and that's a good thing, but will it fill all your financial gaps should a disability keep you from earning a living?
Know what you have and what you need. Group disability insurance plans are offered by employers and you also have the option of purchasing individual coverage directly from an insurer. Start by reading your employee benefits booklet to understand exactly what your group insurance plan covers and where the gaps are. For example:
Check the definition of disability. This is very important: Some plans cover only a total disability with no provision for a partial disability ñ meaning that if your doctor clears you to return to work for only limited hours each day, you could lose all your disability benefits. As well, many group disability benefits cease after two years if you can perform the duties of any gainful occupation for which you are suited.
Check the benefit caps. Many plans replace 60 to 70 per cent of income but are subject to maximum limits based on your income. Therefore, your Group disability plan may not replace the level of income you need.
Check the taxes. If your employer pays any portion of your disability insurance premiums, any payments you receive will be subject to income tax. When you pay the premiums, there are usually no tax consequences on benefit payments to you. (source: Canada Revenue Agency's Interpretation Bulletin IT-428)
Check the portability. If you change jobs (and most Canadians tend to have a number of jobs over their lifetime) and your group plan is owned by your employer, might not offer the ability to convert your group coverage to a personal plan. On the other hand, an individual disability policy that you own and pay for is fully portable and non-cancellable as long as you pay the premiums.
Check the possibility of changes. With a group plan, disability definitions and benefits may change and premiums may increase at any time. With individual insurance, the terms and conditions can't be changed once the policy is in force and premium rates are guaranteed not to increase before your 65th birthday unless you choose to adjust your coverage.
When you depend on your own ability to generate an income, you need adequate disability insurance. Talk to your professional advisor or insurance specialist about coverage designed for your individual situation.
- Managing Your Money, written and published by Investors Group Financial Services Inc. and Investors Group Securities Inc., presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances.
