Disability Insurance

The interesting thing about disability insurance is that it is less understood and discussed than life insurance, but is more likely to be needed than life insurance. For example, in 1984, nearly half of the mortgage foreclosures in Canada were as a result of disability, while only 3% resulted from death (Society of Actuaries, 1985).

Apart from buying an individual disability insurance policy, one may be covered against disability in one or more of the following ways:

1. Coverage under a group benefits plan provided for by an employer or an association. This is low-cost coverage, but the definition of disability is usually narrower than with an individual plan. In addition, it is non-contractual, and can therefore be terminated at any time, and if you leave your job, some plans can be converted to individual plans, but at very high premiums.
   
2. Coverage under a government plan. The coverage is even narrower here. For example, there is disability coverage under the Canada Pension Plan, but only if the disability is "severe and prolonged", thus excluding serious but temporary disabilities. If your employer is covered by Workers Compensation, then you will be covered for a work-related injury or illness, but not any other injury or illness, which is far more likely to occur. Finally, Employment Insurance may cover you, but only for a short time.
   
3. Coverage under your auto policy. Covers for car accidents only, and has further limitations. Who can really benefit from disability insurance? People who do not have group plans at work or an association, including self-employed people, or employees of small businesses that do not have plans. Who else? Highly paid professionals who can't afford to risk the limitations of a group plan.

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