My Long-Term Disability Insurance Options

What Are My Long-Term Disability Insurance Options?

Life can be full of surprises.

You do your best to live a healthy lifestyle. However, at any point, an accident or injury can occur. This can prevent you from working for an extended period of time.

In this case, long-term disability insurance can benefit you by protecting your income. 

Most long-term disability insurance provides coverage for five to ten years, if not until your retirement. In comparison, short-term disability insurance provides protection only for short-term disabilities, often lasting up to a few months.

According to research, the average long term disability claim lasts for 2.5 years. If you are unable to work during this period, with proper long-term disability insurance plan, your income will be secure. Even if your disability lasts for years, you will be covering your regular expenses.

Is Long-Term Disability Insurance Right for You?

Nobody anticipates getting a disability. Sadly, it occurs more frequently than you would expect.

A long-term disability can be anything that makes you unable to work. It can be due to an injury like an accident or due to an underlying medical condition. This include getting cancer, asthma, joint disorders, neurological problems, and more.

More than 90 percent of long-term disability claim occur due to an illness rather than an accident. Regardless of the cause is, this can affect you for weeks, months, or even years at a time. It also becomes very difficult to manage one’s financial situation in such times. 

Most people live from paycheck to paycheck, without much left in savings. If this applied to you, and you are unable to work due to a long-term disability, how will you cover the costs? Would you be able to sustain yourself for at least six months or more?

Suppose your monthly household expenses are $3,000. In this example, you would need $18,000 in emergency savings over six months to cover your bills. 

If you have the savings to use during the period of crisis, that’s great. You may not need insurance coverage during those six months. However, no savings or a longer-term disability, it’s best to prevent all the stress and instability by protecting yourself and your family with long term disability insurance.

When does your long-term disability insurance start covering your income?

You start receiving long-term disability insurance benefits once the elimination period is over. 

The elimination period, or the waiting period, is the time between the occurrence of the disability and the time you start receiving funds. Most plans might have waiting periods of as little as zero days to 30 days. With other plans, it can take sometimes even more than three months to start receiving the funds. In some cases, the elimination period can be up to a year, or even up to two years.

During the elimination or waiting period, you will be responsible for all the expenses and insurance will not cover them.

Also, one thing to keep in mind is that if you opt for a policy that comes with a shorter elimination period, you will have to pay higher monthly premiums. 

So, it’s an inversely proportional relationship between the length of the elimination period and the monthly installments. This is why many people consider combining both short-term and long-term disability insurance.

When will you start receiving the benefits?

Benefits start as soon as they are available and continue until your predefined benefit cap is met. This is the duration you selected when you bought the policy; it may be as little as one year, or it can be for 10 years. When purchasing long term disability insurance, can choose to receive benefits till the time of your retirement. However, an important thing to remember here is that you will pay more for your insurance in premiums the longer you choose the benefits term to be. 

Like other insurance plans, the price of long-term disability insurance varies according to your unique circumstances and the features you opt for in the coverage plan. Often, premium payments or the monthly installments that you need to pay for your insurance run from 1% to 4% of your yearly salary. 

What Are My Long-Term Disability Insurance Options in Canada?

Regarding your long-term disability insurance choices in Canada, you have three options to consider. The first is the long-term disability insurance provided by the government (federal and provincial), such as “Employment Insurance (EI)” and the “Canadian Pension Plan (CPP).”

The second option is the disability insurance for work-related accidents provided by the “Workers’ Safety Insurance Board (WSIB)” or its provincial counterpart. 

The third option is the long-term disability insurance provided by your employee through the work group benefits or the insurance bought privately. 

Employment Insurance (EI):

The Employment Insurance plan offers Canadians who are incapable of work due to illness, injury, or other circumstances short-term disability benefits. The waiting period for this policy is one week. After this period, the payments are paid out for a total of fifteen weeks. The total benefit payout is $562 per week, though you may receive up to 55% of your wages. Your work history and Employment Insurance contributions govern how you receive your Employment Insurance benefits.

Canadian Pension Plan (CPP):

A candidate for the Canadian Pension Plan must have made CPP contributions in four of the previous six years to be eligible (or if they have contributed for over 25 years, then out of the last six years, their contributions from three years will be considered). They must be younger than 65, and most importantly, their injury must be serious (prevent them from performing any kind of significantly profitable activity), and for an indefinite duration that may also result in death.

The benefits of this plan are fairly small. The maximum monthly compensation in Canada is $1,300, yet the average monthly income is less than $1,000. This amount is probably insufficient to pay one’s expenses and maintain the standard of living one had before been disabled. Moreover, this all comes under taxable income. 

Workers Safety Insurance Board (WSIB) or its provincial counterpart:

This works differently for every province and territory. They protect the income of the employees if they incur a debilitating problem at their job, and not outside of it. The employer is responsible to pay for the premiums. These benefits are mandatory for employers in the construction industry and are optional for those in other business categories. This plan involves a tax-free payout for compensation for loss of limbs or senses, such as sight or hearing, because of a working accident.

Private Insurance:

You personally own and control your future with a private disability insurance program.

You can benefit from the maximum monthly disability insurance coverage that your unique circumstances require and add on extra amounts and coverage characteristics as needed, rather than being restricted to group payment options.

Individual plans, as opposed to group plans, can stay with you even if you change jobs. 

Is it right for you?

With any purchase, there are pros and cons. 

Long term disability insurance can be right if you have limited savings and significant ongoing monthly expenses. While price is a factor, it’s often more affordable than most people expect. 

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