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Why You Need Disability Insurance


When disabilities occur suddenly and unexpectedly, they can leave people in great distress from both a health and a financial perspective. If you are a key income-earner in your household, consider the financial burden that would be placed on your family if you suddenly couldn’t earn an income. That’s where disability insurance enters the picture.

How disability insurance can help you

Disability insurance can minimize the financial burden while you are unable to work. It can help:

  • cover your debt payments
  • save you from cashing in your RRSPs or other investments
  • cover your day-to-day expenses if you are self-employed
  • provide funding for additional expenses incurred during disability

How to get started

Disability insurance is designed to replace part of your earnings (typically 60% to 70%) should you suffer an illness or injury that prevents you from working. While disability policies can be complex and difficult to compare, there are some key provisions you’ll want to look for in a policy. Think about getting disability coverage in the early years of your career, since your future earning potential is your most valuable asset at that stage.

How your MD Advisor can help you

Your MD Advisor works together with the insurance advisors from your provincial medical association to provide the advice and solutions you may need.

Step 1: Analyzing your needs. Get started with a thorough analysis of your needs to determine how much disability insurance you require.

Step 2: Exploring your options. The pros and cons of different types of disability insurance will be provided so you can make an informed decision about the coverage you need.

What to look for in disability insurance

Benefit amounts: Before calculating any final benefit amounts, consider the duration of benefit payments, the ability to integrate one disability insurance program with similar programs, and indexing for inflation. Your MD Advisor can work with you to recommend an appropriate benefit amount based on a) the maximum amount you can qualify for; or b) whether the amount is sufficient to manage your daily expenses and save for retirement.

Benefit period: This refers to the duration of benefit payments. Ideally, the benefit period should extend to when you plan to retire (i.e., the age when you would normally stop earning employment income).

Causes of disability: These should include both sickness and injury.

Cost-of-living adjustment (COLA): COLA ensures your benefit payment amounts keep up with inflation. This feature does not take effect until disability payments begin.

Elimination period: This is the waiting period before disability benefit payments can commence. The longer the elimination period, the lower the cost of the disability insurance coverage. An elimination period may typically be 30, 60 or 90 days. You should have emergency reserves to cover any costs you incur during the elimination period.

Restrictions: You should review your disability contract to check for restrictions. These restrictions may limit or deny coverage relating to certain circumstances, such as disability resulting from pre-existing conditions (known health problems in existence at the time of application).

Guaranteed insurability: This allows you to purchase additional coverage in the future, as your income rises, without evidence of good health.

Guaranteed renewability: This allows you to renew the coverage, but not necessarily at the same rate.

Non-cancellable: The coverage is guaranteed to continue at the same premium.

Reduced disability benefits: If you don’t meet the definition of total disability, you may be eligible for a reduced amount through either a partial or residual disability benefit.

Refund of premium: Some disability policies allow for a partial refund of premiums if you have not made a claim during a specified time period.

Tax treatment: Generally, disability benefits are non-taxable if you paid the disability insurance premiums with your personal after-tax dollars.

Having a disability insurance policy in place gives you peace of mind. Your MD Advisor will work with your provincial medical association to help you determine how much disability insurance you need.

Learn more about MD's insurance offering here or contact your MD Advisor to find out how we can help.