Alternatives To Life Insurance With Disability Coverage
There are several alternatives to life insurance with disability coverage.
Short-term Disability
Short-term disability insurance can help you fill income gaps if you are temporarily prevented from earning a living. It pays a percentage of your income if you are temporarily affected by illness or injury â usually 60% to 80% of your pre-disability salary.
Short-term disability can include conditions such as:
- A short-term illness
- Digestive disorders
- Non-work-related injuries
Some life and disability insurance companies exclude certain conditions, like mental illnesses. Therefore, carefully read the terms before signing up. Most short-term policies provide income protection for a few months, but some may offer benefits for up to two years.
Long-term Disability
Long-term disability provides income replacement to workers who cannot work because of a prolonged illness or injury resulting in disability.
A disability can prevent you from earning a living. While some people can pay bills and put food on the table without earning a paycheck for a few months, few can get by without working altogether for an extended period.
This is where long-term disability insurance can come in. These policies provide a monthly benefit amount for longer periods. Benefits can last anywhere from 24 months to retirement age, depending on your policy. Long-term disability coverage usually costs around 1-3% of your salary, and the benefit amount is usually about 60% of your after-tax salary.
What Disability Insurance Covers
Disability insurance pays you a percentage of your income in the case that you suddenly become disabled.;
Typically, this coverage will pay you anywhere from $500 to $10,000 per month depending on the amount of coverage you purchase.
These payments are not available immediately when you become disabled. A waiting period of 30 days to 365 days may apply depending on your policy.
Health Care Coverage For Disability Beneficiaries
Individuals who are receiving;Social Security disability insurance become eligible for Medicare after receiving DI for two years. Low-income individuals who receive SSI are generally eligible for Medicaid immediately. Health coverage is critically important for those receiving disability benefits, because individual insurance policies are likely to be unaffordable or unavailable to them. According to the Academy;report, Balancing Security and Opportunity: The Challenge of Income Disability Policy, Many people with chronic health conditions or disabilities are at risk of very high health care costs. They often cannot gain coverage in the private insurance market, and even when they do have private coverage, it often does not cover the range of services and long-term supports that they need. Current gaps in health care coverage for people with disabilities limit their labor market options in several ways.
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Coverage And Maximum Benefit
If you become disabled, the monthly benefit is applied towards your regular monthly PLC payments. This benefit amount is 3% of the lowest of the following amounts:
- The end-of-day balance owing to CIBC on your insured PLC on the date you first become disabled;;
- The credit limit of your insured PLC on the date you first become disabled;
- The Canada Life-approved maximum coverage amount for your insured PLC on the date you first become disabled;;
- The Capped Disability Benefit Amount; or;
- $200,000.
The maximum monthly benefit is $6,000 per month, for a maximum period of 24 months. You will have to wait 60 days following the date you become disabled before benefits will be payable.
The Capped Disability Benefit Amount only applies if you become disabled from a condition or health problem for which you received medical treatment, as defined above, after you first applied for Disability Insurance coverage on your CIBC PLC and in the 12 months before your disability occurred. The Capped Disability Benefit Amount is the highest end-of-day balance of the insured CIBC PLC owing to CIBC in the 12 months preceding the date on which you first received medical treatment.
Mortgage Disability Insurance Cost
Another similarity between mortgage disability insurance and regular long term disability is how your premium cost is determined. Both types will consider your age, occupation, and overall health to assess your risk of suffering an injury or illness that limits your ability to work.
The difference is that instead of considering your income, mortgage disability insurance premiums are based on your mortgage payment.
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How Do I Get Disability Insurance
When shopping for disability income insurance, any coverage you receive will ultimately come from an insurance carrier. But there are several different avenues to coverage you may want to consider.
One option is to look for coverage as an individual. Disability insurance for individuals can be obtained by working with a licensed independent insurance agent or going directly to an insurance company. When you buy an individual policy, you own it for as long as you pay the premium. Plus, the amount you pay is generally locked in. It will not change unless you opt for more coverage. Individual plans are also portable. You donât lose coverage by changing jobs or losing your employment.
Another option is to get disability insurance through work. More often than not, group disability insurance coverage can only be obtained if it is offered to you by your employer or an association you belong to. Because many employers offer group disability insurance as an employee benefit, they may pay some or all of the premium cost. Group disability plans are guaranteed issue. This means if you apply for coverage, you are automatically enrolled. There is no underwriting.
The biggest downside of an employer-sponsored policy is that itâs possible to lose coverage. This can happen in two ways.
Questions To Ask Yourself
When youre thinking about buying long-term disability insurance, ask yourself these questions, Hoffman suggests.
1. How much of your income would you need to replace to maintain your lifestyle if you became disabled and couldn’t work?
Use the answer to determine the monthly benefit to select.
2. How long could you wait before the disability benefits kicked in?
This will determine the “elimination period” the number of months you would wait after becoming disabled for the policy to pay out. A typical elimination period is 90 days, but you can choose shorter or longer periods. The longer the elimination period, the lower the insurance price.
3. How long would you want the benefits to last?
For some occupations, such as plumbers and carpenters, benefits are limited to five years on most policies, Hoffman says. For desk jobs, you can choose a benefit period to last a certain number of years or up to a certain age, such as 65. The longer the benefit period, the higher the price of the policy.
4. How broadly would you define “disability”?
Tinker with the benefits if the price quote is too high. Hoffman recommends:
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Start by increasing the waiting period before benefits kick in
-
Reduce the payout period
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An Example Of Premium Calculation For Single Coverage:
You are 42 years old and your CIBC PLC or ELC balance is $50,000. Your Disability Insurance premium for one day is calculated as follows: × 12 months ÷ 365 days) × = $1.956. If your balance remained at $50,000 for the entire 30-day billing period, the monthly premium would be the $1.956 daily rate added for the 30 days, which is $58.68.;
Total And Partial Disabilities
Own-occupation or any-occupation disability is one of the most important factors to consider when getting a long-term policy. However, in certain situations, a persons disability and immediate need for benefits is beyond question. Thats why many disability policies have a;presumptive disability;feature that pays full benefits without an elimination period to a policyholder who loses sight in both eyes, hearing, speech, or the use of at least two limbs. Since the financial consequences of these kinds of disability can be especially severe, many long-term disability insurance policies also offer a;catastrophic disability rider;as an optional feature to increase the amount of disability benefits. For example, Guardians;Enhanced CAT;provides up to 100% income replacement and adds a compound 3% cost-of-living adjustment.
Sometimes people can still work, but their disability has resulted in a partial loss of responsibilities, time on the job, and income. Thats why many LTD policies offer a;partial disability;feature which pays a reduced percentage of benefits if you become disabled in a way that limits your ability to work but doesnt cause total disability. Some insurance companies also offer;enhanced partial disability benefit riders;to provide added income protection even if you are still working but only losing a percentage of your pre-disability earnings due to the disability.
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What Other Types Of Riders Offer Added Protection
Many other riders are typically available, and some of the most popular choices include:
- Basic or enhanced partial disability benefit rider: These options protect you by paying a partial benefit if you suffer an injury or illness that limits your ability to work but doesnt cause total disability.
- Student loan protection rider: This optional benefit provides extra money to make student loan payments during a specified period. It is particularly useful for early-career professionals such as doctors and lawyers who have invested heavily in their education.
Future purchase option: This lets you increase coverage in the future as your income rises, without having to undergo a medical exam or provide proof of insurability.***
There Are Two Types Of Disability Policies: Short
Disability policies have two different protection features that are important to understand:
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How Colonial Life Disability Insurance Works
When an accident or illness happens, the last thing you want to think about is how you’re going to pay the bills. With our short-term disability benefits, you may receive financial support for up to two years, so you can focus on what really matters: recovering and getting back to work.
Colonial Life disability insurance offers disability benefits, as well as a variety of optional provisions to pay for psychiatric conditions, psychological conditions and hospital admission. You can choose the appropriate benefit amount to meet your needs. No matter which amount or policy you select, benefits are:
- Payable on a monthly basis directly to you , regardless of any insurance you may have with other companies
- Able to be used to pay for whatever you like, including rent, house payments, car payments, utilities, credit card bills, travel expenses and more
- Potentially available if you return to work part time
- Able to be kept if you change jobs
Talk with your Colonial Life benefits counselor to learn more and pick the right plan for you.
Regular Or Own Occupation
The definition of “regular or own occupation” plan means you’ll receive benefits if you’re unable to perform the main duties of the job you had at the time the disability started.
You’ll still receive benefits even if you can work in a different job from the one you had before your disability, based on your training, experience and education. Some policies don’t allow you to get benefits, or may reduce your benefits, if you begin working in a different job.
In group policies, it’s common that policies have regular or own occupation plans for a specified period of time. At the end of the specified period of time, usually after the first 2 or 5 years, the disability policy will often change to the any occupation definition.
Own occupation plans that never change in definition are often purchased individually and usually cost more than any occupation plans.
You may want to consider an own occupation plan if you have a specialized occupation that would require you to take a significant pay cut in order to work in another field.
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Physical Exam And Medical Tests
Most insurance companies medically underwrite disability insurance. In plain language, this means that they require their insurance applicants to have a physical and consent to testing before offering a policy.
For instance, one company that we write insurance through requires applicants to have a urinalysis. This test will confirm whether the applicant is a smoker, uses recreational drugs, or has the early onset of a serious disease like kidney disease, diabetes, or liver disease.
Buying Your Own Disability Policy
Consider buying a policy if you dont have any or enough disability coverage at work or are self-employed. Employer-sponsored disability insurance usually pays only a portion of your base salary, up to a cap. Its a good idea to supplement that coverage if your salary far exceeds the cap or you depend on bonuses or commissions.
An insurer will consider other sources of disability insurance to determine how much coverage you can buy. Generally, you cant replace more than 75% of your income from all the coverage combined, Hoffman says.
Buying your own policy lets you:
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Customize the coverage with extra features, such as annual cost-of-living adjustments
-
Choose the insurance company with the best offerings
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Keep the coverage when you change jobs. Employer-paid coverage ends when you leave the company.
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Control the disability insurance. The coverage stays intact as long as you pay for it. But employer-sponsored coverage will end if the employer decides to stop providing disability benefits.
-
Collect benefits tax-free if you become disabled. If the employer pays for the coverage, you must pay taxes on the benefits.
The annual price for a long-term disability insurance policy generally ranges from 1% to 3% of your annual income, according to the Council for Disability Awareness. A variety of factors affect the cost.
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Disability Insurance Vs Workers Compensation
Workersâ compensation is covered entirely by your employer. Unlike disability insurance, you donât need to pay anything for workersâ comp. However, there are two important reasons to consider disability insurance in addition to workersâ comp.
Disability policies cover you regardless of where or how you sustain an injury but workersâ compensation only covers work-related injuries and illnesses.
Most disabilities happen off the job and therefore wouldnât be covered by workersâ comp. For example, disability insurance would cover injuries from a car crash if they keep you out of work, but workersâ comp would not cover you unless the accident happened on the job.
If you sustain an injury at work and receive workersâ compensation, your private disability insurance benefits could be reduced by the amount you receive from workersâ comp.
How Much Coverage Do I Need
You should have enough coverage to live off comfortably if you were to lose your paycheck due to disability. Most financial experts recommend your disability coverage should be big enough to replace 60-70% of your pre-disability salary.
That said, how much coverage you would need, depends on your situation. Here is a simple formula to help you make an educated guess:
â = Minimum disability coverage
Monthly Expenses
Start by finding out how much you currently spend in a month. Make a list of all your monthly expenses and do not forget to factor in âmiscellaneousâ expenses. Finally, add your loan repayments to the tally.
Reductions in Spending
When you will not be working, you will likely require less money than what you need currently. Some of the reductions in expenses you may want to factor in are:
- Commuting expenses
- Wardrobe
- Workday lunches
In addition to these, you may also be able to reduce your housing costs considerably. Many professionals prefer living in high-income neighbourhoods because they are close to their work addresses. When they do not have to live near to their workplace, they can opt to move to a cheaper neighbourhood.
Income from other sources
Another question that people frequently ask is â where can I buy disability insurance?
Here are the different options available:
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Is Disability Insurance Worth It
As you weigh your options, consider what you would do if you couldnât work for an extended period.
- What if you endure a temporary or permanent disability at some point in your working life?
- How long could you go without a paycheck before experiencing financial hardship?
- Does your group plan provide enough coverage to maintain your current lifestyle?
- Could you get by on government disability benefits? If youâre actually approved, that is.
Of course, thereâs no way to answer any of these questions for certain. But you can prepare for the worst by putting a disability insurance plan in place today.
Better to be proactive now than reactive when it’s too late.
Jack Wolstenholm is the head of content at Breeze.
The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.