DISABILITY INSURANCE

Of all of the things for which we buy personal insurance coverage, disability is the most likely to occur. Disabilities are, at best, traumatic. Physical stress can be trying enough without concerns about paying financial obligations. Disability insurance is available in many forms, and due to the nature of the risk, which may be partial or total, policies can appear to be complicated.

Essentially three basic types of disability contracts are available:

1. Group Long Term Disability. Neither the premium nor the definitions are guaranteed. The insurer can, generally each year on the renewal date, change the coverage which you have, and / or change the premiums which you pay, or cancel the policy.
   
   Definitions in Group Long Term Disability contracts are almost always designed in such a way that the risk to the insurer is reduced by any other insurance which you have, and by any benefits from the government (including CPP disability benefits), from car insurers, or by any income which you can earn.
   
   Group insurers also maintain the right to insist that you participate in a mandatory rehabilitation plan, of their choosing. If you don't participate, the claim is cancelled. If you do participate, the claim is reduced. This allows them to reduce their risk of payment.
   
   
2. Guaranteed Non-Cancellable Individual Disability Income Protection. Policies are fully guaranteed. They can not be cancelled by the insurer. The insurer can't change the premium which you pay. The insurer can't change the contract's definitions. Only you can make changes to the policy. This is the only form of coverage where the insurer accepts the full risk.
   
   
3. Guaranteed Renewable Individual Disability Income Protection. The insurer guarantees to renew the policy, with the existing definitions, at whatever premium they feel that they require to meet their obligations. This type of coverage transfers much of the risk to you. The insurer knows that all that they have to do is to charge a very high premium to get you to cancel your policy.

QUESTIONS TO ASK ABOUT DISABILITY INCOME PLANS

1. Is the plan (both the coverage and the premium) cancellable or changeable at the insurer's option?
2. Is the plan guaranteed to be renewable at least to age 65?
3. Is the definition of injury restrictive? Does it have to be independent of all other causes?
4. Are cost of living benefits guaranteed?
5. Will benefits be paid for partial disability?
6. To qualify for partial disability benefits does an individual first have to be totally disabled for a fixed period of time?
7. Can days required to satisfy the waiting period be accumulated or do they need to be consecutive?
8. Will benefits be paid for residual disability?
9. Can full benefits be paid if working in another occupation while unable to do own occupation?
10. Would income billed prior to disability but collected during disability have a tendency to reduce benefits?
11. Are benefits payable for the full duration of total disability or for a lesser period determined by age?
12. Is guaranteed insurability an aspect of the contract?
13. Is guaranteed insurability related to increases in income?
14. Are emotional and psychological disabilities covered?
15. Are self inflicted injuries, while sane or insane, covered?
16. Is own occupation coverage available within exact areas of specialization?
17. Is the own occupation definition permanent, or only available for the first few years of claims?
18. Who mediates your claim? Is it a clerk employed by the insurer, or your agent?

Guaranteed Non-Cancellable Disability Insurance - Available Coverage

1. Each contract is non-cancellable and guaranteed renewable at least to age 65. The renewal premiums are guaranteed by the insurer in the contract. Individually owned Disability Income Protection Policies provide 24 hour, 365 day, world-wide coverage on a tax-free basis to qualified individuals.
   
   Guaranteed Insurability will protect your increasing earning power. Increases in benefit amount will be available annually, in amounts of up to $500 to $2,000 per year, subject to financial evidence and age (55). One such option would be exercisable during any period of disability.
   
   
2. Partial Disability benefits allow for the accumulation of days of partial disability provided that such days are separated by no more than 12 months. To satisfy the elimination period stated in the contract there is no prerequisite of any total disability.
   
   Residual disability comes into effect once total disability has ended and you return to work at less than 80% of pre-disability income.
   
   Both benefits will create pro-rata payments to allow the gradual increase of post-disability earned income to pre-disability levels. In both cases pre-disability income will be indexed for inflation to increase the duration of a claim and offset the effects of inflation.
   
   Thus the contract will not require that the Elimination Period be of consecutive days in duration, nor will it require that days of disability contributing to the elimination period be days of total disability.
   
   
3. Monthly earnings prior to an eligible claim will be based on the most favourable of two income periods. The definition of sickness in the contract refers to the first manifestation of symptoms, rather than the commencement date of eligible disability. This will prevent the reduction of benefits due to decreased earnings during periods of progressive disability, leaves of absence, special assignments, or other special circumstances.
   
   
4. There are no sources of income by which the insurer of an individual disability income contract may offset an eligible claim (except earnings in your own occupation).
   
   
5. There is no requirement for you to participate in a rehabilitation programme if you are disabled. If disabled, you may request that the insurer fund the costs associated with a rehabilitation programme of his choice. Provision for the payment of rehabilitation expenses are a part of the disability contract.
   
   
6. You qualify for disability income benefits based upon total accrued earnings. These amounts are generally available without limitation, and based solely on prior income.
   
   
7. A cost of living adjustment is available at 5% or 8 % (based upon the C.P.I.), per annum during a period of disability. These amounts are not be subject to a maximum dollar limit.
   
   
8. After you have returned to work, the policy allows for the continuation of the increased coverage obtained as the result of inflation indexing. There are no exclusions in the application of this benefit. Thus in spite of inflation, the coverage available to you when you return to work following a period of disability will be sufficient to meet your continuing needs.
   
   
9. Individual contracts are "full indemnity contracts" and will only be reduced by the percentage of prior income earned while partially or residually disabled.
   
   
10. Residual disability benefits will be indexed as an aspect of the basic individual disability income contract. This applies equally during periods of rehabilitation.
    
    
11. The individual disability income contract does not require that the Elimination Period be of consecutive days.
    
    
12. A lifetime benefit option is available which would allow for the continuation of benefits past your 65th birthday. This will provide a disability retirement supplement.
    
    
13. After the contract has been in force for at least two years self inflicted injuries, while sane or insane, are covered.
    
    
14. Successive periods of partial, total, or residual disability, or any combination thereof, which are separated by fewer than 12 months of active full time employment will be considered as one uninterrupted period of disability.
    
    
15. Loss of sight, hearing, the use of any two limbs, or the ability to articulate clearly will be considered as total disability, regardless of income earned subsequently. This will allow a disabled individual to develop a new earnings strategy. This benefit would continue to be paid to age 65, or for life by rider.
    

In addition to the base contract of disability income protection, many individuals have taken advantage of the following forms of protection.


RETIREMENT ACCOUNT PROTECTION

Retirement Account Coverage will create a self-administered trust fund. Deposits of up to $2,000 per month (depending upon the amounts purchased) will be made for each month which you are disabled, following a 90 day elimination period. Principal deposits are tax free and the interest earned in this account would be taxable. The fund should allows for the withdrawal of up to 54% of the interest earned annually to pay taxes.

This would result in the accumulated fund at age 65 being tax free. In the event of a death prior to age 65 the accumulated value of the fund would be released to a named beneficiary.

For periods of disability, this will result in your continued ability to accumulate for retirement. This can occur without encroaching upon regular monthly disability income payments or upon other sources of income.


BUSINESS OVERHEAD EXPENSE DISABILITY PROTECTION

1. Each contract is non-cancellable and guaranteed renewable at least to age 65. The renewal premiums is guaranteed in the contract. Individually owned Disability Income Protection Policies provide 24 hour, 365 day, world-wide coverage on a tax-free basis to qualified individuals or businesses.
   Guaranteed Future Insurability will protect your increasing expenses. Increases in benefit amount should be available annually, in amounts of up to $500 to $1,500 per year, subject to financial evidence and age (55). One such option may be exercised during any period of disability.
   
   
2. Partial Disability benefits allow for the accumulation of days of partial disability provided that such days are separated by no more than 12 months. To satisfy the 30 - 180 day elimination period stated in the contract there is be no prerequisite of any total disability.
   
   
   Residual disability comes into effect once total disability has ended and for as long as the business continues in a deficit position.
   
   Thus the contract does not require that the Elimination Period be of consecutive days in duration, nor does it require that days of disability contributing to the elimination period be days of total disability.
   
   
3. The definition of sickness in the contract refers to the first manifestation of symptoms, rather than the commencement date of eligible disability. This will prevent the reduction of benefits due to decreased earnings during periods of progressive disability, leaves of absence, special assignments, or other special circumstances.
   
   
4. There is no requirement for you to participate in a rehabilitation programme if you are disabled.
   
   
5. The contract does not require that the Elimination Period be of consecutive days. It does not require that days of disability contributing to the elimination period be days of total disability.
   
   
6. After the contract has been in force for at least two years self inflicted injuries, while sane or insane, will be covered.
   
   
7. Successive periods of partial, total, or residual disability, or any combination thereof, which are separated by fewer than 12 months of active full time employment will be considered as one uninterrupted period of disability.
   

Disability Income Protection

1. Waiting Periods:
   30, 60, 90, 180, 365, 730 days of Total or Partial Disability (these may generally be accumulated in consecutive or non-consecutive days of disability within a fixed period);
   
   
2. Benefit Payment Method:
   monthly payments pro-rata to loss of (inflation indexed) income
   
   
3. Benefit Payment Duration:
   24 months, 60 months, to age 65, to age 71 and for life (depending on insurer).
   
   Business Overhead Expense Disability Insurance
   
   
4. Waiting Periods:
   30, 60, 90, 180 days of Total or Partial Disability (these may generally be accumulated in consecutive or non-consecutive days of disability within a fixed period);
   
   
5. Benefit Payment Method:
   monthly payments pro-rata to loss of income (may be tied to individual's or Corporation's loss)
   
   
6. Benefit Payment Duration:
   12, 15, 24 or 60 months (depending on insurer).