Most Canadians have access to group disability insurance plans through their work.
Studies indicate that 1 in 3 people develop a disability at some point in their lifetime. For many people, this happens before the age of 65. Most people become disabled for more than three months at a time (often for years).
While group disability insurance plans provide some coverage, they are not always enough. It is recommended to get an independent disability insurance policy for more comprehensive coverage, which a group policy may not be able to offer.
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Why Is an Independent Disability Insurance Plan Better?
Disability insurance is intended to replace a portion of your income if you become disabled and unable to work. Numerous factors, including an illness, an injury, or mental health issues, might result in a disability. Disabilities can persist for a few months, or sometimes for years.
People suffer from major accidents and medical emergencies more often than you would think.
During your working years, long-term disability insurance is important. Almost equally as important as disability insurance is life insurance. Even though you are in excellent health right now, anything can happen. So, it is better to get adequate coverage for any unpredictable event.
What Are The Benefits of Independent Disability Insurance?
Independent disability insurance has multiple benefits. Some of these include:
1. You Remain Covered Regardless Of The Situation
Most group insurance policies are cancellable. Since they are through employers, any organizational change can make you uninsured. This includes being let go of your job.
One of the benefits of an independent policy is that it is non-cancellable. As long as you pay your monthly premiums, no one can take the coverage away from you.
With a group policy, if the insurance company finds a group is high risk, they can cancel their coverage anytime. Or they can reduce the benefits for the group members.
Such is not the case with an independent policy.
2. Fixed Premiums
Group disability insurance rates often increase every year. Whether it is through an association plan or a group insurance plan provided by an employer. The insurer may continue to provide you with coverage, while also increasing your costs. Often, some of these costs are passed down to the employees of the company or association.
With an independent policy, you don’t have to worry about this. Your premiums will always be fixed for the same level of coverage.
3. More inclusive Coverage
An individually owned disability insurance policy has more inclusive criteria for what counts as a disability. If you are sick or injured and unable to work, this could be quite significant. An individual plan still pays out a percentage of your income while you’re on disability, even if it’s a small injury. Meanwhile, group plans frequently demand that you be completely disabled to get paid. You need to be unable to work for the group coverage benefits.
4. No lapses in Coverage
Most group policies stop providing coverage after someone has been disabled for a period of time. This can happen even if you are still a part of their employment plan. On the other hand, a rider or “own occupation” clause can be added to an individual insurance plan.
This ensures that you will always be insured if you cannot perform your specific job, no matter for how long. This is another reason why an individual coverage plan is often better than a group plan. Most group or association plans don’t contain this clause.
5. Coverage Even After Employment Changes
People who are individually insured can continue receiving insurance benefits even if they switch jobs. In contrast, if you depend on insurance provided by your employer, it is more at risk. When you switch jobs, their insurance coverages also change. The type of disability insurance and coverage provided by various employers is different. Hence, this is an important point to consider before you decide to go for an individual insurance plan.
6. No Group Risk
The cost of group insurance relies on the risk factors of the entire group. If the risk increases, the insurer can increase the price of insurance too. The payment structure of group insurance is layered. The premiums are usually smaller in the amount in the early years. But as time passes, this price also increases.
On the other hand, this is not the case with individual insurance. The costs remain fixed.
7. More Riders and Coverage
Individual plans allow for more flexibility and additional features. This is in addition to the “own occupation” rider that we mentioned above. While some association plans allow for riders to be added, an individual policy often has a much wider range of possibilities for coverage.
This includes a return of the premium rider. If you don’t file a claim for a fixed period of time, you can get paid back 50-100% of the premiums you paid in overtime.
Some of the other possible features include:
Future Coverage Purchase Option
This is also known as the Guaranteed Insurability Option. It enables one to purchase more disability insurance in the future.
Cost of Living Adjustments
It offers an annual increase to disability insurance payout (dependent on inflation).
Life Insurance and Critical Illness Insurance Riders
This allows extending the benefits of a disability policy with additional insurance coverage.
8. Tax-free Benefits
The employer pays for the group disability plan’s premiums.
Since the group policy is paid with pre-tax dollars, disability insurance benefits are taxable when you receive them. So a $2000/month plan, may only end up paying you $1400/month or less, depending on your tax bracket.
On the other hand, this is not the case with individual disability insurance plans. They are paid with after-tax dollars, so their benefits are also tax-free.
Is an Individual Disability Insurance Right For You?
We have discussed the benefits of an individual insurance policy in detail. While group disability coverage is a great added benefit, your individual disability insurance needs can differ from that of a group.
Before replacing your group insurance right away, it’s better if you discuss your circumstances and needs with individual life and disability insurance broker. This will help you make the right choice for your lifestyle and needs.
