You can’t buy adequate home insurance if your house is on fire, and if you wait until you’re sick or injured to see your disability insurance contract, the fine print may surprise you.
1 in 3 Canadians will be disabled for a period of more than 90 days at least once before the age of 65. For those who are disabled for more than 90 days, the average duration of that disability is 2.9 years. Despite the statistics, many professionals and business owners often overlook or delay proper disability insurance planning.
For business owners and professionals covered by a group insurance plan, it may be a good idea to take the time to dust off that benefit booklet to review sooner rather than later. Typically, group insurance plans will have a NEM (No Evidence Maximum) of $4,000 to $5,000 depending on the size of the group and the nature of the business. This NEM will limit the monthly benefit a high-earning homeowner or professional would receive while providing rigid guidelines on when to return to work and in what capacity.
Disability insurance contracts can pay up to 66.7% of pre-disability earnings for high-income professionals or business owners with a complete application and medical exam. Built-in features like “Own Occupation”, “Additional Insurance” and “Residual and Partial Disability” are often NOT included in group insurance plans and will have a significant impact when it comes time to claim. It is worth considering a review and understanding of these options. More details about each term mentioned above are provided below:
– Own Occupation: If you are unable to perform the substantial duties of your regular occupation due to injury or illness, you will still be considered totally disabled if you choose to work in another occupation. Group Insurance Plans will have a definition of “Any Occupation”.
– Additional Insurance: Guaranteed insurability up to age 55 as long as you are not disabled and your income justifies the increase.
– Residual/Partial Disability: You are not totally disabled, but you are unable to work full time. You would receive a portion of your monthly benefit to offset this decrease in income.
If you became disabled, would your business continue to generate the same earnings? Many business owners are so involved in their operations that they find it difficult to take a sick day, let alone not show up for long periods of time. Disability insurance planning for business owners and working professionals is often overlooked, but it is a key part of the income protection mix.
Group Insurance LTD – The need to know
As mentioned, pay attention to the maximum without evidence (NEM). This is the maximum amount of disability benefit you would be entitled to without providing medical evidence. You may be eligible for increased coverage if you undergo a medical exam and complete an application as explained above.
Please note that LTD benefits are generally offset (reduced) by any disability benefits you may receive from CPP/QPP or Workmen’s Compensation. Any benefits paid as a result of an accident from an auto insurance plan may also reduce your LTD benefits.
If you personally pay the LTD premium, the benefit will be received tax-free.
In groups where the employer pays the LTD premium, the benefit, when received, will be taxable. If this is the case, be sure to discuss with your employer or insurer what your options are for withholding taxes if he is disabled so there are no nasty surprises come tax time.
As you can see, there are many options and details to review when it comes to disability insurance planning for working professionals and business owners. It may be time to dig up your coverage and do a review to make sure you have a clear understanding of the definitions in your current program and what alternatives may be available.