Can you and your family cope financially if a sickness or injury prevents you from working to earn a living?
Disability insurance provides you with a monthly income if you can’t work for an extended period due to an illness or injury.
What is Disability Insurance?
Disability insurance is a living benefits coverage that aims to replace a portion of your income should disability prevent you from working at a job, business, or profession in order for you to continuously earn a living even when you’re unable to work for it.
If you actively work for income or a salary, you need disability insurance. Click To TweetDisability insurance insures your income. In the event that you lose your ability to actively work for a living due to injury or illness, you will receive a monthly income from your disability coverage.
Like anywhere else, most Winnipeg families protect themselves from the financial loss that may arise from asset breakdown. It isn’t uncommon for us to financially secure ourselves from loss of assets such as cars, houses, gadgets, computers, furnitures, and even home entertainment systems. Unfortunately, most of us fail to financially protect ourselves and our loved ones from the potential loss of our most important asset, which is the ability to earn a living.
Most people think that they don’t need disability insurance and simply shrugs-off the financial risks of disability altogether because they don’t think that it will happen to them.
While it’s good to always have a positive outlook in life, we have to acknowledge the fact that there are life events that are simply beyond our control. Disability insurance is an effective risk management measure against the possibility of income loss.
As you may know, there are different ways of managing your risks, and they are as follows.
- Risk Assumption
- Risk Avoidance
- Risk Sharing, and
- Risk Transfer
Everyone tries to avoid risks on a daily basis but sometimes risk avoidance just isn’t enough because avoidance sometimes fail, which results to risk assumption if risk sharing or transfer isn’t in place.
The most effective risk management strategy is risk transfer.
Instead of assuming the financial consequences of an injury or illness, you can transfer it to an insurance company, so they assume the financial risk on your behalf, thereby mitigating yours.
Types of Disability Insurance
Disability insurance has two general types and they are:
- Short Term Disability Insurance
- Long Term Disability Insurance
Short Term Disability Insurance
Short-term disability insurance will replace a portion of your income in the first couple of weeks of disability, it ensures that you will have income coming while satisfying the waiting period of a long-term disability insurance coverage which may vary between 30 to 120 days depending on your policy. Most short-term disability insurance doesn’t have a waiting period and is a must-have especially if you have a long waiting period on your long-term disability policy which, as mentioned, may take up to 120 days.
Long Term Disability Insurance
Most people are interested in long-term disability insurance coverage than a short-term policy, this is because most disability conditions are long-term in nature and short-term disability insurances only offer less than a year of disability coverage. A long-term disability insurance can cover an individual from two, five years, and up to age 65 depending on your chosen policy.
As mentioned, long-term disability insurances have waiting periods that could vary from 30, 90 or 120 days before the coverage kicks in that’s why it’s a good idea to have short-term disability insurance in place that has no waiting period to supplement your income while satisfying the waiting period of your long-term disability insurance coverage.
Short Term Vs. Long Term Disability Insurance
Considering that there are two general types of disability insurance, you might wonder as to which one will better benefit you. Should you only get long-term disability insurance, get both coverages or should you just settle with short-term disability coverage instead? As your Winnipeg financial advisor, I would advise that you implement long term coverage is it covers you for both short term and long term disabilities since the elimination period can be as short as 30-days even with a long term insurance policy.
Most group disability insurance policies offer short term disability coverages, usually to a maximum of 2-years.
Is It Worth It to Get Short Term Disability?
When considering getting short-term disability insurance, the first thing that you could check is if you’re already covered by your employer’s group insurance. Some employers, bundle this coverage with their group health plans and will cost you next to nothing.
If you don’t have this coverage at work or if you’re a self-employed professional or small business owner, this is something you may want to look into especially if your long-term disability insurance has a long waiting period like 90 or 120 days, that could mean between three or four months without income and on average, most Canadians will have a hard time coping up with their bills and obligations only two months out of work.
How Much Does Disability Insurance Cost Per Month?
Like any other individual insurances, factors like age and lifestyle are important considerations when determining disability insurance cost per month and in addition to these basic factors, your type of work or otherwise, called occupation class, waiting period, and length of coverage in case of disability all play a factor that affects the monthly cost of your disability insurance protection but as opposed to popular belief, a disability insurance protection need not be expensive, on average a sound disability insurance protection could cost between 1 and 3 percent of your annual income which as you may agree is a spare change when it comes to protecting your most valuable asset.
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