Disability insurance: a coverage you can't afford to overlook

We've written several articles dedicated to life insurance because we know just how worrying about protecting your loved ones from financial concerns after your death can be. But have you ever thought about the impact a disability could have on your income?

In its guide to disability insurance, the CLHIA (Canadian Life and Health Insurance Association) indicates that almost a third of the population will experience a period of disability of at least 3 months before the age of 65. With this in mind, no one is immune to temporary or permanent disability.

It is therefore a good idea to have a solution in place to cover your monthly expenses and debts in the event of an accident or serious illness. Here is everything you need to know to make the most appropriate choice.

What is disability insurance?

Disability insurance, as its name suggests, is a disability compensation benefit. However, this is not the only insurance available. In this section, you will find the necessary information to understand what disability is and what solutions are available to protect you against any subsequent financial implications.

Disability compensation in Quebec

In Quebec, disability compensation benefits can come from group or individual insurance, but also from government institutions depending on your situation:

• The CNESST (Committee on Standards, Equity, Health and Safety at Work) offers workers in Quebec an income replacement indemnity in the event of an accident at work or occupational disease, until they are able to return to work;
• Employment Insurance sickness benefits (EI sickness benefits) provided by the Government of Canada may offer you compensation of up to 55% of your usual earnings, providing your employer does not offer you sick leave or short-term disability insurance;
• In the event of an indefinite disability, whether mental or physical, disability benefits may be available through the Canada Pension Plan (CPP).

Income protection insurance: how does that work?

When a person loses the ability to perform the duties of their current job due to a disability, they are no longer able to support themselves financially.

Disability insurance, also called income protection insurance, is a personal insurance product that compensates for this loss of income within the limit of a ceiling or a maximum duration depending on the contract. After a waiting period, and unless excluded, the insured person receives a monthly disability pension, the amount of which represents between 60% and 85% of their salary.

The waiting period corresponds to the period, following the onset of the disability, during which the insured does not receive any benefits. Depending on the insurance policy, this can vary from 1 to 4 months.

Exclusions to the contract are another element that varies according to the insurer. The most common exclusions relate to back pain, depression and burnout from work. Be sure to read your policy before committing yourself, as some insurance companies may add to this list.

What is the definition of a disability?

The definition of a disability involves an inability to work or perform daily tasks, temporarily or permanently, due to physical or psychological reasons.

Be aware that the definition of disability can vary from one insurance company to another. Most insurers will measure your disability by taking into consideration only your usual occupation. However, this definition is often only applicable during the first two years of disability.

After this time, your overall ability to work will be assessed. Your disability situation will not be validated by your insurance company and you will only continue to receive your benefits if you cannot perform any job corresponding to your level of professional aptitude. The insurer may go so far as to finance training to enable you to find a job.

Example:

A chef develops a disabling disease that deprives them of the use of their hands. They will be entitled to receive the disability pension provided for by their insurance policy for the first two years since they can no longer perform their duties as a chef. However, after this period, it is expected that they will be able to return to work in a different position, such as a teacher in a cookery school.

Everything you need to know about individual disability insurance

As with life insurance, individual disability insurance may supplement the insurance offered to you by your employer. This has the advantage of being tailored to your specific needs, rather than being conditioned by the needs of a group. In addition, you will be able to keep your insurance policy even if you change jobs.

What are the different types of disability insurance available?

In Quebec, there are two categories of disability insurance:

• short-term disability insurance whose contracts cover a maximum period of 6 months;
• long-term disability insurance which comes into play when the short-term insurance comes to an end within the limit of the ceiling fixed in the contract.

This insurance can be taken out under three types of contracts:

Non-guaranteed or cancellable disability insurance contract

This is the least advantageous contract for the insured because the guarantee is not permanent. With this type of insurance policy, the insurer is entirely in control. They can modify the contract and increase the premiums as they wish. But, most importantly, they can refuse its renewal or opt to accept it only under certain conditions.

Guaranteed renewable insurance

As its name suggests, with this contract, the renewal of your insurance policy is mandatory. However, your insurer may modify the conditions (e.g. add exclusions) and increase the premium. Revisions are generally made once a year, including in the following situations:

• loss of job or change of profession;
• deterioration of the state of health,
• change in the amount of the insured salary.

Non-cancellable and guaranteed renewable insurance

This product, also known as irrevocable insurance, stipulates that the insurer cannot cancel the insurance policy or increase the amount of premiums during the entire duration of the contract. This means that until the policy ends, often fixed at the age of 65, the guaranteed benefits will remain in place as established, regardless of your income or state of health. In the event of disability, you will therefore receive the monthly payments initially stipulated.

However, irrevocable disability insurance is not available to everyone and is more expensive because insurers take on more risk with this level of coverage. For this product, insurance companies give priority to professions with a high salary level and where job stability is recognized.

How should you choose your disability insurance?

There are several factors to consider before choosing your insurance policy. Here are some questions to ask yourself and your insurer to make sure you choose the product that best suits your needs.

Questions to ask yourself before choosing an insurance policy

• Do you have the financial resources to cover a waiting period? For how long?
• How much are your monthly expenses? Could you cut back on your lifestyle?
• Do you have any outstanding debts (car loan, mortgage, credit cards…)?
• What percentage would be needed to cover your monthly expenses?

Questions to ask your insurer

• What is the definition of disability within the context of the contract?
• What percentage of your salary is guaranteed?
• Is the waiting period the same in the event of an accident and in the event of illness?
• Does the contract provide for exclusions (diseases or accidents that are not covered)?

Compare price lists offered by different insurance companies

As with all insurance products, you should shop around for your health insurance to make sure you find the insurance policy that best suits your needs, at the best price. Here are some criteria that will influence the amount of your insurance policy:

• your age;
• your professional activity and the salary to be insured;
• the duration chosen for the waiting period;
• the duration of benefits;
• the type of contract.

Hiring an insurance broker can greatly facilitate your research. They will decipher all the clauses of the insurance policies for you.

Take stock of your group insurance

If you have taken out group insurance through your employer, it is important to ask yourself about the benefits offered. What types of personal insurance are included? Do you have disability insurance or only health insurance?  Also be sure to read your contract carefully for more details on the scope of coverage, the waiting period and any exclusions.

Are you looking for an insurance broker?

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