In this week’s Globe and Mail, Preet Banerjee investigates the financial aid available to the disabled. I’m quoted. The interview took place via Bluetooth while I was driving to the sold-out Toastmasters conference. (There, Jonathan Holowka and I showed ways to turbocharge clubs with social media.)
Disability is a dreary subject and you avoid buying insurance, but the topic is popular this week. Advisor.ca, has articles to help salespeople clear the sales hurdle and pitch disability coverage. There is even a script for them to use on you. If you start getting contacted in the near future, maybe that’s why.
This post gives you more insider thoughts about disability insurance, which is sometimes given the glitzier name of income replacement insurance.
StatisticsThere are many eye-popping statistics about the high risk of disability and how long income can be lost. Here is a recent video from PPI Solutions.[no longer embeddable ... view here]
You probably know people who are disabled at least partially.
Death is something an actuary can calculate fairly easily and accurately. Predicting who will become disabled is not so easy. It is a calculation based on chance.Life insurance pays a fixed amount upon death. Critical illness insurance pays a fixed amount upon diagnosis of a covered illness. Within reason, you decide how much coverage you want.
— New York Times, April 2011
Disability insurance is different. It only replaces a portion of your lost income. If you were able to replace your full income and get indexed benefits, where is the financial incentive to return to work? If the economy is bad and layoffs are pending, getting disabled may look like an exit strategy.
To counter abuse, insurers have ongoing checks to make sure you still qualify. With life and critical illness insurance, you're only checked at the time of the claim.
Disability has subjective elements. Insurers have leeway in deciding who qualifies for benefits. There are three key ways to getting your claim paid.
NortelYou can't rely on disability protection from your employer even if you pay the premiums. We already looked at the two types of coverage you may have but can't own.
Nortel is a sad example. Instead of getting real insurance, the company decided to insure employees themselves. Since Nortel is bankrupt, their promises mean nothing. The disabled lost their benefits. If real insurance were used, then benefits would have continued. If the insurer failed, Assuris protection would step in.
In British Columbia, the government is not paying legislated benefits to thousands of disabled people.
If you can't rely on an employer or government, can you rely on yourself? If you don't have your own DI coverage, you are your own insurer. Since you cannot tell if you're going to become disabled or for how long, self-insuring can prove very costly unless you're independently wealthy.
ProblemStatistics Canada reports that 1 in 7 Canadians are disabled. The rates increase with age. Not only is disability common during your working years, the benefits could be paid until age 65 and might even be indexed. While the protection is worthwhile, it's pricey. It has to be. That’s why some people buy critical illness insurance instead. That's valuable coverage but hardly a substitute.
The perceived problem is that you can spend lots of hard-earned money on insurance and never get a long term disability. Isn't that better than having a claim? You had peace of mind and your health.
- Financial aid is available for the disabled (Globe and Mail, Nov 23, 2011)
- Preet Banerjee: articles in The Globe and Mail and blog posts at Where Does All My Money Go?
- Disability insurance wiki (riscario.com)
- What you need to know about life and disability insurance (NY Times, April 2009)
- The six financial fears of Canadians and the four financial risks
- Thousands of disabled denied legislated benefit (Globe and Mail, Jul 5, 2011)
- Two types of insurance you may have but can’t own
- Oblivion: What happens if your insurance company dies?
- A week in a handicapped hotel suite
- Disability Insurance Discussion Checklist (advisor.ca, Nov 23, 2011)
- Pitching disability coverage (advisor.ca, Nov 21, 2011)
- Clearing the DI sales hurdle (advisor.ca, Nov 23, 2011)
- Disabled Nortel workers suffer again (Toronto Star, May 2011)
- Nortel disability advocate Peter Burns dies at 54 (CBC News, May 2011)
- Self-insured company disability plans (Canadian Personal Finance Blog, May 2010)
- image courtesy of Julya Katkova (Russia)
Podcast 145 (hmm)
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PS Relying on your employer for your pension is also risky. Defined benefit plans are becoming rare in the private sector and we're living longer than ever.