About 20 years ago, I went rock climbing in Squamish with a good friend of mine. After successfully completing a challenging top-rope pitch I called down to my buddy “On Belay!”, signalling that I was ready to descend under control of my friend at the base. He shouted back “Belay On!”, and I started to hop back down the rock face, leaping a few feet at a time. The problem is, my friend was a bit more focused on chatting with the cute girl next to him, and not so much me. He let the line slip, and I dropped 15 feet onto a vertical rock flake… my body bent backwards and I suddenly couldn’t feel my legs.

Partially paralyzed with three cracked vertebrae, it took more than six months of bed confinement and two years of intensive physiotherapy for get back to a normal life. I couldn’t work for most of that time. Fortunately I had an individual insurance plan to supplement the group disability policy I had with my salaried job. It paid me over the first 3 months of disability, the time when the group plan couldn’t pay a dime. It also paid above and beyond my group plan, which only paid a measly 66% of my previous income. I was able to live my life without worrying about where the money was coming from for daily living expenses. 

Many years later as an insurance agent, I’ve found that most people understand the importance of life insurance but hardly anyone instinctively sees the value in individually-purchased living benefits. The fact is that all of us will be sick or injured more times in our lives than we will die. Insurance against an accident or disease that prevents us from working is of critical importance, but too many people have trust that they have adequate coverage through work and don’t look into their options. 

There are three main options with living benefits: long-term disability (LTD), critical illness (CI), and zero-wait policies. All pay you money in case of an illness or disability, but they do so in very different ways. Disability insurance and zero-wait policies provide a daily or monthly income if you’re unable to work due to a serious injury or illness, while critical illness insurance pays out one or more lump sums following the diagnosis or treatment of a specific condition detailed in your policy. So which one is right for you?

Group Coverage falls short

If you work for a company with health benefits, you might have long-term disability insurance built into it. Generally speaking, these plans pay a fixed portion of your regular income if you become totally disabled. Because both your employer and the insurer want you to go back to work as soon as possible, payments are almost always 66% of your pre-disability income. Furthermore, almost every group disability plan has a 90 day waiting period. During this time you would be eligible for Employment insurance at 55% after a one week waiting period which is capped if you earn more than $54.2k per year. 

Doing some basic math, if you’re used to earning $3,000 per month you would be accustomed to earning $18,000 over a normal six month period. If you were disabled for six months, EI and your group plan would pay you a grand total of $10,890… meaning you would average only $1,815 income per month over your disability. This is almost a 40% drop in income, and higher income earners would see a much higher percentage drop – some as high as 80%.

This begs an important question: if your employer told you tomorrow that your income will be cut by 40%, would this affect your lifestyle? If you’re like most Canadians, this would probably bankrupt you in a matter of months!

Also keep in mind that payments from private disability insurance are tax-free, while the payout from most corporate plans is taxable. Most importantly, group insurance plans NEVER protect a spouse in case of disability… so don’t count on your husband or wife’s coverage to protect your income!

Because of this, you may want to consider a private disability plan to supplement your group benefits. To give you a quick idea of the cost involved, a private “top-up” policy for a 40-year old non-smoker could cost as little as $28 per month, while an individual income replacement policy would only be around $140 per month. Many policies even come with a return of premium option, meaning they cost little to nothing in the long run.

If you’re unsure about how your benefits would help you through a disability, reach out to an advisor proficient in Accident and Sickness Insurance. Just keep in mind that 90% of Life Insurance Agents don’t deal in living benefits, so quiz a potential advisor a bit to ensure you’re dealing with the right rep. 

If in doubt, give me a shout – I’d be happy to help!