Seven Questions About Disability Insurance, Answered

Disability often comes out of nowhere. You’re going about your daily life, feeling good about the way that things are going, and then suddenly you’re unable to care for yourself and your family.

We rely on our bodies constantly and assume that they will be there to support us. How can you cope when your body suddenly doesn’t work in the way that it used to? How can you make ends meet if you can’t work? How can you take care of all of the responsibilities that fall on your shoulders?

A great solution to the danger of losing your ability to support yourself and your family should you become disabled is to purchase disability insurance. Though many people will become disabled each year through accident or disease and therefore unable to work, only a small fraction of those are financially prepared for that unexpected event. You don’t have to be a caught unprepared.

Essential Questions, Answered

The challenge is that disability insurance is complicated, and can be difficult to understand. Here are seven essential questions about disability insurance and the answers that you need to know in order to get the right policy for you.

1. What kinds of disability insurance are available?

There are two kinds of disability insurance – the group insurance and individual insurance. Group insurance is usually bought by an employer and paid for with pre-tax income. Individual insurance is something that you seek out on your own and pay for with after-tax income. Both are viable options for getting quality disability insurance.

It’s important to know that there are a great many reasons that insurance companies can deny coverage altogether, including things like being under the care of certain types of doctors or pre-existing conditions.

2. What is the definition of disability?

It’s a sickening feeling that too many people have experienced, finding out that their disability isn’t actually covered by the policy that they’ve purchased. Often an individual won’t be considered to be “disabled enough” to qualify. Each insurance company has it’s own very detailed definition of what disability is, and those definitions are incredibly important. When you’re looking at a disability insurance policy, be absolutely certain that you know the definitions of disability are.

The definition of what counts as a disability can change over time with a group policy. So you might be covered for a couple of years if you aren’t able to do the job that you were originally hired to do, only to lose coverage after that if you’re able to work at all. That could mean working at a job that offers a fraction of the pay that you were making before if you’re not considered to be disabled enough to be completely unable to work. It could also mean that you’ll only get partial benefits if you’re able to work for a few hours each week.

If you do file a claim, don’t be afraid to contact the benefits administrator in order to get a clearer picture of what the definitions mean and how they apply to your specific situation. Keep in mind that disability isn’t a term with an exact definition, so advocacy can be very beneficial.

3. What is residual disability, and is it covered?

Residual disability occurs when there is a slow recovery from an accident or disease, or a slow decline in function that is progressive. It’s different than total disability. If you’re able to work in a limited capacity, then residual disability is what you’re experiencing. Group plans tend to be limited in terms of residual disability coverage, and individual plans often need to have riders placed on the policy in order to ensure full coverage of residual disability. Because disability is not usually something that has a neat beginning or a cut and dry ending, residual disability insurance is incredibly important.

4. How much is paid in benefits?

The most common form of calculating disability insurance payments is the percentage method. Policies tend to pay somewhere between sixty and seventy-five percent. Self-employed individuals will generally need two years of earnings history in order to find coverage, so that salary levels can be determined.

Another common aspect of benefit payment is the cumulative maximum – meaning that once you’re paid a certain amount, you won’t be eligible for any further payments, no matter what the circumstances. Coverage limits can be a nasty surprise should you become disabled, and this is one area that you can’t afford to be in the dark about.

Knowing how much your disability benefits are will allow you to plan for the future. A serious problem with disability insurance is that many people don’t even know how much they’ll be paid! Don’t make any assumptions, check your policy to find out what you’re entitled to and how long the payments will be made. Often you can dramatically increase your coverage for a modest increase in premiums, a choice that might be well worth it to you to make.

5. How much does disability insurance cost?

This greatly varies depending on age and coverage amount. If you’re over thirty-five, expect to pay more for coverage than if you’re under that age. Premiums on new policies go up consistently with age, so if you’re able to buy when you’re young then you’ll be in a much better position.

Are disability insurance payments taxed? Different kinds of policies are taxed in different ways. If you’re part of a group policy that’s covered under your employment, then you’ll generally be not taxed on benefits as long as employee paid.  Should the employer paying any portion of the disability premium it becomes taxable.  If you’re paying out of pocket with income that’s already been taxed, then you won’t be taxed on disability payments.

6. What are the exclusions on disability insurance?

Each policy has its own set of exclusions, and these are important to understand. Common exclusions include travel outside of Canada, mental disorders, alcoholism and pre-existing conditions. If your disability is on the list of excluded disorders, then you are truly out of luck when it comes to payments. Knowing the exclusions on your policy is an essential part of being well informed.

7. Making the right decision for you

If you change jobs, become self employed, or decide that you want to stay home to raise your family, then you could find yourself without coverage, and that’s not a place that you want to be. Disability never comes at a convenient time, and you need to be ready!

In order to make the best decision possible, you need to learn as much as you can about what your policy has to offer. Don’t think that you can buy a standard package and get the coverage that will help you in a time of crisis. Your insurance advisor is qualified to give you advice on the right coverage for you, and you’ll be in a much better position to get the coverage that you need.

Just as you are a unique individual, you need a policy that is unique and tailored to fit your needs! Disability insurance is not a one-size-fits-all kind of purchase. Getting the right disability coverage for you that’s free from gaps will give you the peace of mind that you crave, and the help that you need to keep you and your family secure, no matter what life throws at you.

Call Morgan National Corporation today for more information regarding your options in disability insurance policies, at 1-866-595-3533 or visit our long term disability and disability policy page to learn more about these specialty policies.