Protecting yourself from possible lost income when the unexpected occurs - Understanding and maximizing Disability Insurance Coverage 

August 2013


While no one wants to contemplate the possibility of becoming disabled, the fact remains that if you fail to plan, the result to your lifestyle and the needs of your family can be seriously impacted.

Long Term Disability (LTD) Insurance coverage is designed to replace earned income in the event that you become totally disabled.  While it does not replace 100% of your pre-disability income, these benefits are critical during an extended period of illness or disability.  Disability income benefits will ensure that you can continue to pay bills, while recuperating from a prolonged illness or during rehabilitation from a physical disability. 

Know the limitations of your group insurance plan
LTD coverage is often provided by an employer as part of a comprehensive group benefit package.  These plans are offered to all employees of a certain employer or professional association.  Designed to provide coverage to a broad spectrum of individuals in a group, the coverage is typically capped at a maximum income level and definitions within the plan can be restrictive.  Premiums are based on the make-up of the group of employees who are covered.

When reviewing your disability insurance plan it is important to keep the following key items in mind:

  • Tax status of your disability income benefit – if you pay the premiums for the coverage instead of your employer, the benefits will generally be paid out on a tax free basis.
  • Definition of occupation class – the definition of occupation will dictate when you are considered disabled under the contract and qualify for benefits. 
  • Salary base – when calculating your monthly disability benefit, does the plan include only base salary or commissions and bonuses also?
  • Waiting period – the plan will define the waiting period between the time the disability occurs and when benefits will commence.
  • Duration of benefits – once you are receiving benefits, how long will they be paid?


Important considerations for high income earners and those with unique occupations
In many cases, coverage under a group LTD plan is not sufficient to effectively compensate individuals who are in higher income brackets or those who have unique occupations. Individually owned disability insurance coverage can be purchased to “top up” the coverage provided by an employer’s group plan, or as a stand-alone policy. By purchasing an individual Long Term Disability plan, you can customize options to maximize coverage for your personal needs. Premiums are based on several factors including your age, gender, smoking status and, of course, your occupation. Additional benefits can be added as “riders” to provide for partial coverage should you go back to work part time during your recovery.

Benefits of individually owned LTD coverage:

  • Portability if you change employer
  • Personalized plan to provide for your needs
  • Additional features such as partial and residual disability riders
  • Flexibility to choose waiting period and duration of benefits


    Are you sufficiently covered in the event of a disability?
    If you would like to have your Long Term Disability Insurance reviewed to ensure it meets your needs, or for more information on Long Term Disability Insurance or a complimentary copy of our education articles “Topping up your Group Insurance” and “Executive Top Up for Disability”, please contact your Investment Advisor.

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