Disability Insurance
How well does your group policy fit?

Imagine the horror of being diagnosed with a progressively debilitating disease. Imagine the relief of knowing that while you have to stop working, you have a group disability plan that will help to make ends meet. Imagine your disbelief when your claim is declined by the insurance company because you just aren't disabled enough in their eyes.

It happened to Cookie and it could happen to you. If you want to avoid a nasty surprise just when you can least afford it financially and emotionally, write down these questions, take them to your benefits administrator at work and make sure you understand the answers you're given.

What's the policy's definition of "disabled" and how long will benefits be paid?
If you can't do the job you were hired to do, will you be paid regardless of what other work you may be able to find? Will partial benefits be paid if you can only work for a few hours a day? A weak definition of disabled can be one of the biggest holes in a plan. Carol D. had a disability plan that covered her for her 'own occupation' for two years, after which it reverted to 'any occupation'. That's pretty typical of a group plan. The only way Carol could continue to collect after two years is if she were unable to do any work at all. As long as she could sit and hold out her hand, she could work as a parking lot attendant.

How much am I covered for, and how will it be taxed?
Most group policies cover employees for a certain percentage of their salaries - usually 60 to 75 percent. Some also have a cumulative maximum. But many people have no idea how much they're covered for or even if their disability income will be taxed. Group policies paid for by an employer generate income that is taxed. Will your income be enough once tax is taken? If you pay the premiums directly from your after-tax income, your benefits are tax-free.

Does my policy have a residual disability feature?
In the case of a slow recovery or a slow deterioration from a progressive disease, this feature becomes very important. Without it, years may pass before your claim can begin because you must meet the insurance company's definition of "totally disabled". That was the humbug in Cookie's case. While Cookie couldn't work, the insurance company refused to accept that she was sixty percent disabled and wouldn't pay up, not till she got herself a lawyer, anyway. Since most group plans have limited benefits for residual disabilities, the seams of your safety net may not be as strong as you think they are.

What are the exclusions on my policy?
An exclusion is something you aren't covered for and typical exclusions include travel outside Canada, pre-existing conditions, mental, nervous disclosure, and alcoholism. The list can be wide and varied. And if your malady falls within the list, you've got a hole in your safety net.

People often don't carry individual disability insurance because they believe their group coverage is enough. Smart people who want to make sure that they and their families are well protected don't rely on the off-the-shelf version. They look to an individual policy to supplement it. The other important issue in favor of an individual policy is that you may not always have your group plan. A change in jobs, the decision to stay home to raise a family, or self-employment could all leave you with no coverage. And if this comes after you're 35 years old, buying a new disability policy can get pretty expensive.

Buying disability coverage is complicated. Not only are there rigorous health criteria, you have to show proof of income relative to the coverage you're applying for. That often excludes new entrepreneurs from coverage at least until they have a two-year earnings history. And as you get older, not only does coverage get more expensive, it becomes more difficult to qualify.

Martha P. sought counseling during the year she was going through a very difficult divorce. Later she was denied for disability coverage because she had been under a psychiatrist's care.

You absolutely, positively need the help of a qualified insurance advisor when you go shopping for disability insurance. With so many sizes and styles out there, it's very easy to buy one that looks good on the hanger but just doesn't fit. Using a generalist will get you in trouble. The good fit comes with a fine tailor who can custom make a disability plan just for you.