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What should I consider when purchasing disability insurance?

A disability income plan is designed to pay a predetermined amount per month in the event of disability. There are three main components to consider when tailoring a plan to effectively meet the needs of the individual seeking disability income coverage.

  • The benefit amount is the amount of monthly income an individual would be entitled to receive should they become disabled. It is most often purchased in multiples of $100, often with a minimum benefit of $500 monthly.
  • The elimination period is the time that the insured must be disabled before they are eligible for benefits. An elimination period can be 30, 60, 90, 180 or 365 days. All other things being equal, the longer the elimination period, the lower the policy premium. Factors to consider when choosing an elimination period are other types of coverage that may be in place (e.g. coverage through one’s group plan), and the amount of cash reserves that an individual would be prepared to use during the elimination period.
  • The benefit period is the length of time benefits are paid during the period of disability. It is usually expressed in years (e.g. five years, 10 years, to age 65 or “lifetime”). The longer the benefit period, the higher the policy premium.

The primary causes of disability are accidents and illness. There may be physical or mental impairment. In some cases, even if the insured can still perform some or all of their regular duties, he/she is presumed to be fully disabled and entitled to disability benefits under certain circumstances, like loss of sight, speech, hearing, or use of limbs.

Disability insurance is offered by almost every major life insurance company in Canada, e.g., Great West Life, Sun Life, Canada Life, Manufacturers Financial.