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Excerpt
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Chapter 4: Disability Insurance
Marie's
Story:
The
first question Janet's associates asked after calling to find
out how she was progressing was this: "Does she have
enough disability insurance?" Yes, as a good financial
planner, Janet did take out disability insurance-as much as
she was able-but there is never "enough" coverage
when a disability strikes.
Most
people know how life insurance works: someone dies, the insurance
company pays out a benefit to the survivors to replace the
breadwinner's current income and potential future income.
What about situations in which the person doesn't die: they
are alive, but unable to work? This is when disability insurance
is needed.
Disability
insurance is really income-replacement insurance. The money
that the policy pays replaces a portion of the income that
would normally have come into the household if the person
with the disability had been working.
Most
individuals employed full-time in large corporations and public
sector organizations have disability plans as part of their
benefits. There is usually a Short-Term Accident and Sickness
program that begins at the start of an illness or disability.
After
a certain number of weeks, the Long-Term Disability (LTD)
Plan benefits begin. Even these employer-sponsored LTD programs,
however, may have maximum dollar payout provisions, for example,
no more than $2,000 per month paid out in benefits. This means
that higher income employees may not receive enough to maintain
their living standards. In some situations, these policies
can be added to, or topped up, by privately paid policies.
The
main sources of disability income insurance are as follows:
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Group
disability plans through employers |
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Professional
group plans offered by professional associations (engineers,
doctors, lawyers, etc.) |
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Group
disability plans such as university alumni associations |
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Affinity
group plans as offered by Boards of Trade and Chambers
of Commerce, etc. (The cost is modest for the basic coverage
usually offered.) Membership in the Board or Chamber is
required to join these plans |
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Federal
Government through the Canada Pension Plan (See Chapter
6, "Critical Illness and Long-Term Care Insurance.")
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Private
disability plans bought by individuals, particularly those
who are small business owners, entrepreneurs or consultants |
Disability
insurance is costly if you must pay for it yourself, whereas
group plans are relatively inexpensive for employees to purchase.
It's worthwhile, however, to keep the cost in context. How
much do you pay monthly for car insurance-hoping it will not
be needed, but knowing that it is essential for your financial
and legal well-being? In Canada's largest cities, even with
a top-rated auto policy, you are probably paying at least
$100 per month in premiums. For the same amount, a 40-year
old non-smoker could probably get disability insurance that
would pay over $1,000 per month in the event of a disability.
Disability insurance is sold by agents licensed by life insurance
companies to sell disability insurance. General insurance
agents, who are licensed to sell only home and auto insurance,
do not sell disability insurance, although they may sell out-of-country
medical insurance.
In this chapter, the focus is on the general principles of
disability insurance, especially privately purchased policies.
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