How Does Credit Life & Disability Insurance Work
The premium may be included with your monthly payment. If you have a balance on your loan and are totally disabled due to a covered injury or illness or in the event of your unexpected death, Credit Disability and Credit Life Insurance may help cover your loan payment.*
You can cancel coverage at any time if you change your mind. If coverage is canceled within the first 30 days you will receive a full refund if the premium has been paid. Coverage is immediate for eligible borrowers.
How Disability Insurance Works
Oftentimes, insurance products will protect against a specific loss, such as when a property and casualty insurance plan reimburses the policyholder for the value of stolen property. However, in the case of disability insurance, this compensation relates to the lost income caused by a disability.
For example, if a worker earned $50,000 per year prior to becoming disabled, and if their disability prevents them from continuing to work, their disability insurance would compensate them for a portion of their lost income provided that they qualify. In this sense, disability insurance essentially covers the opportunity cost of the now-disabled worker.
In practice, there are many conditions that a policyholder must satisfy in order to receive these payments. This is particularly true in regard to the U.S. Social Security System. To qualify for government-sponsored disability insurance, applicants must prove that their disability is so severe that it prevents them from engaging in any type of meaningful work at all.
What Is Your Premium Budget
Out-of-pocket disability insurance premiums vary widely, from virtually nothing to hundreds of dollars per month. Your policys premium is a function of its benefit amount, term, and key features, such as the elimination period and whether it offers any or own occupation coverage. As a rough rule of thumb, try to keep your total premium under 2% of your gross income from employment for instance, $1,000 annually on a $50,000 salary before taxes.
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Group Disability Insurance Through Your Work Or An Association
Your company may offer STD or LTD insurance as part of your employee benefit package. If youre self-employed you may be able to get disability insurance through a professional association. Either way, group disability insurance can be an excellent choice: Because the company or association is buying for a large group of people, the premium is typically lower than for an individual policy. In addition, your HR department will likely have more expertise and leverage to negotiate favorable terms.
An added benefit to getting a policy through your employer is that they may also subsidize a portion of the premiums, further lowering your cost. On the other hand, because the company or association is effectively buying in bulk, you will probably have less opportunity to tailor the policy to your needs. If the premiums are paid with pre-tax dollars then the income benefit you get down the road will typically be taxed. Finally, if you leave the company or association, in most cases youll also lose your coverage.
Canada Pension Plan Disability Benefits
The Canada Pension Plan disability benefit is a monthly payment you can get if you:
- are under 65
- have made enough contributions into the CPP
- have a mental or physical disability that regularly stops you from doing any type of substantially gainful work
- have a disability that is long-term and of indefinite duration, or is likely to result in death
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How Do I Compare Credit Disability Insurance
Credit disability insurance is typically a form of group insurance purchased by your lender to offer all of its borrowers, so you may not have your choice of policy. But there are individual policies available and key factors to consider before you apply for this form of coverage.
- Cost. Do the math to figure out how much youll pay in insurance over the time of your loan to decide if the coverage is worth it.
- Payment structure. How you pay for the coverage can help you determine the expense of the policy. For example, you should avoid a single payment structure, if you dont want to pay interest on your insurance coverage.
- Coverage limits. Be sure to check both the monthly payment maximum and the full policy payout to make sure your coverage will actually cover your loan.
- Your age and health. If youre close to the maximum age of the policy, or have an established health condition that could cause your disability, this coverage may not be worth it for you.
Types Of Disability Insurance
Long-term or short-term disability policies are generally the available options.
- Long-Term Disability Insurance. A type of disability insurance policy that provides funds to help replace lost income if you become disabled for an extended period of time.
- Short-Term Disability Insurance. A type of disability insurance policy that provides funds to help with monthly expenses like car loans, mortgage, rent and credit cards or to help replace lost income if you become disabled.
Here are more details about the benefits and options for most disability insurance policies.
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Two Types Of Disability Policies: Short Term And Long Term
Short term disability insurance is for temporary disabilities and is designed to replace up to 60%-80% of your income for a short period of time. STD is often provided through your workplace, either as a mandatory or voluntary benefit. The typical benefit period is 3-6 months , or until you can get back to work.
Long-term disability insurance is for more severe and even permanent disabilities. Its sometimes offered as a workplace benefit, but is often purchased as an individual policy. The benefit is designed to last for many years through retirement if needed replacing up to 60%-80% of your income if something were to happen and you could no longer work.
How Much Does It Cost
For most Lines of Credit, the cost of Disability Insurance is based on your average monthly balance. For instalment arrangements the cost is based on your loan payment. Premiums are calculated monthly and billed to your Line of Credit account. Full details on rates, and how premiums are calculated, are provided in the Certificate of Creditor Insurance .
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Why Is It Important To Have Disability Insurance
Disability income insurance products can help you plan for the unexpected and help protect you and your family financially. They provide financial income to help cover expenses as it pays you a percentage of your salary if you become totally disabled due to an illness or injury that prevents you from working. Depending on your policy, disability insurance covers your lost income for anywhere from a few weeks to longer periods of time. Here are more details on the major types of disability insurance.
Are My Benefits Affected By Changes In The Cost Of Living
Your net benefit will be increased in relation to the cost of living, up to a maximum of 3 per cent.
For example, if the cost of living were to rise by 2 per cent, your net monthly Disability Insurance benefit of $1,125 would be increased by 2 per cent on the January 1 following the effective commencement date of your benefits to become $1,147.50. If the cost of living were to rise by more than 3 per cent per year, your net monthly DI benefit of $1,125 would be increased by 3 per cent on the January 1 following the effective commencement date of your benefits, to become $1,158.75. See example above.
At the same time, your PSSA and CPP or QPP benefits would also be increased in relation to the rise in the cost of living. No matter what level of increase you receive under those plans, that increase would not be included in the offset against your DI benefits. You would receive the full benefit of escalation under the other plans.
On January 1 of each subsequent year, your DI benefit would be adjusted by further increases in the cost of living to a maximum of 3 per cent. Again, you would receive the full cost of living increase in your PSSA and CPP or QPP benefits without offset.
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How Do Earnings From Rehabilitation Employment Affect My Disability Benefits
Normally, your monthly disability benefits will be offset by earnings you receive from other sources only to the point where your total income while working, together with any benefits you are receiving under the Disability Insurance Plan, exceeds the insured salary on which your benefit was based. In other words during rehabilitative employment you can earn up to 100% of your pre-disability salary.
Can I Appeal The Decision Of The Insurer
If, at any stage of your claim, benefits are not approved and you do not agree with the decision, you may choose to appeal the decision by providing additional information to the Insurer. Your claim, along with any additional information provided, will be reviewed at a more senior level within the Insurerâs claim department.
If you disagree with that decision, there are two further levels of appeal available, as outlined below.
Level one
You may request that your claim be reviewed by the Insurerâs Group Disability Management Unit comprised of medical doctors and senior claims analysts. This group will review all information available to them and may request, for example, that your condition be evaluated by an independent medical examiner at the Insurerâs expense. You will be advised of their decision. At this point, you can decide to accept the decision or proceed to the second level in the appeal process.
Level two
You may, after receiving the decision at the first level of appeal, decide to seek another opinion. The Plan provides for a second formal level of appeal, in the form of an independent review, conducted by the Disability Insurance Plan Board of Management. If you or your representative wishes to have your claim reviewed by the Board, you should write to:
The Secretary C. D. Howe Building, West Tower 7th Floor, 240 Sparks Street P.O. Box 1525, Station B Ottawa, ON K1P 5V2
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Why Would I Need A Lawyer To File This Type Of Claim
To provide a simple example, lets say you purchase involuntary unemployment insurance. The company that is backing your loan isnt checking to see if youre unemployed. If you are, they can deny the claim even though you were paying into it. The only criteria that insurance companies look for is a line of credit.
Typically, multiple forms of protection are bundled together making this more confusing for policyholders. Policyholders simply assume that if theyre allowed to purchase the insurance, that the policy will cover them. Yet the insurance companies wont even go so far as to establish the fact that youre employed when selling you unemployment protection.
Payments To The Company
10. Subject to section 11, the Minister shall pay monthly to the company in respect of each month during which the plan is in effect,
11.1 The deputy head of a board, commission, corporation or other portion of the Public Service of Canada specified in Part II of Schedule I, or an employer specified in Part III of Schedule I, shall pay monthly to the company in respect of every month during which the plan is in effect,
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Who Is Covered By The Plan
The Plan covers persons for whom Treasury Board is the Employer, and who are represented in the collective bargaining process. Represented employees of a number of designated agencies and corporations also participate in the Plan.
Generally speaking, new employees hired on a full-time or part-time basis are covered automatically under this Plan. A full-time employee means a person whose assigned hours of work equal the normally scheduled hours of work for a full-time employee employed in the same occupational group. A part-time employee means a person who is assigned to work more than one third of the normally scheduled full-time hours for his or her occupational group.
Membership is compulsory if you are employed as described below:
- for an indeterminate period, membership is compulsory from the date of appointment
- for a term of more than six months, membership is compulsory from the date of appointment
- for a term of six months or less, membership is compulsory from the date you have been continuously employed in the public service for a period of at least six months
- as a seasonal employee, membership is compulsory once you have completed six months of continuous active service in any one season. If you continue to be employed on a seasonal basis, coverage continues during subsequent seasons, but is not in force during off-seasons unless you are engaged in some other eligible employment in the public service.
Note:
How Long For A Decision
It can take up to 4 months for a decision to be made. The date your application form is received may affect the date your benefit begins. Do not wait for your completed medical form before sending your completed application form.
However, a decision on your application can only be made when you have sent both of the following:
- a complete application form
- a signed medical report
For eligible disabilities, we aim to make a decision on your eligibility within 120 calendar days .
If we confirm your condition is grave, we aim to process your application within 30 calendar days.
If we confirm you have a terminal illness, we aim to process your application within 5 business days.
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How To Build Credit
Your credit score is one of those key numbers that can make a big difference in your financial life. A great score can translate to far better rates on car and home loans, while lower scores mean you may encounter higher fees and interest rates or even be refused credit or loans.Credit cards are usually the first place people start to build credit. However, if you aren’t careful, it’s easy to overspend and find your credit score taking a hit. That’s why you should manage your credit responsibility and, if your score is low, work on improving it. Here’s how.
Why Do I Need Disability Insurance When I Have Long And/or Short Term Disability Through My Company
Long term disability coverage from your employer usually only covers up to 70% of your income. With a disability you may be faced with medical and other unexpected expenses. Disability Insurance on your Line of Credit will help to alleviate the financial strain caused by those extra expenses, and/or reduced income, during a time when you are disabled.
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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.
Are You The Sole Or Primary Breadwinner In Your Household
If youre the sole or primary breadwinner in your household, your family may depend on your disability benefits for basic necessities, such as secure housing, clothing, and sustenance. Though your family may be eligible for certain public safety net programs, these may not be sufficient to cover its living expenses. Moreover, key programs, such as housing assistance, may have years-long waiting lists.
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Why Are Credit Disability Insurance Claims Denied
The most common reason for denying a credit disability insurance claim is a policy exclusion. Often, these policy exclusions were in place when the insurance policy was sold to the policyholder.
As an example, credit life insurance policies are often used to back car loans. If a person dies before they can pay off the loan, they dont want to saddle their estate with the debt. However, when they signed the contract, they didnt realize that they had to be under the age of 50 to receive benefits. The insurance company never asked their age. When they purchased the policy, they were 51. So theyd been paying into the policy for years with no hope of ever enjoying the benefits of it.
In other cases, they will accuse the policyholder of misrepresenting facts that would have led to an exclusion.