Everybody needs an insurance umbrella that provides financial protection from the potentially devastating effects of an accident or serious illness.  But are you sure you’re completely covered?  Or are there holes in that umbrella that could quickly unexpectedly wash away your hard-earned savings and damage your financial future beyond repair?

You may have group insurance at work and feel confident that it will fill all your financial gaps should a disability keep you from earning a living.  But maybe it won’t — you should read your employee benefits booklet very carefully because many plans have significant restrictions and many provide only partial or limited salary replacement.

Who needs disability insurance?

Anyone who relies on income from employment to support their lifestyle should consider individually owned disability insurance — especially if you have a family and are the primary breadwinner. Even if you’re single, disability coverage can provide vital funds to help pay your housing costs and other expenses if you can’t work. For the growing ranks of the self-employed, disability insurance is a must. Without adequate coverage your family is likely to suffer financially and you could even lose your business. 

Understand what you have

Group disability insurance plans are often offered by an employer or through a professional organization.  You may also purchase individual coverage directly from an insurer.  Either way, you should take the time to understand exactly what your plan covers and where the gaps are.

·         Among the most important parts of any disability insurance contract is the definition of “disability”.  Some plans cover only a “total” disability — meaning you are unable to perform the duties of your regular occupation and are not engaged in any other gainful occupation — with no provision for a “partial” disability.  So, for example, if your doctor clears you to return to work, but only for four hours a day, you could lose all of your disability benefits.

As well, many group disability benefits cease after two years if you can perform the duties of any gainful occupation for which you are suited, based on your education and experience.

·         Many plans have an “elimination period” — the period of time before benefits kick in.  Usually, the shorter the period, the higher your premiums.

·         Some plans exclude certain illnesses or conditions and many exclude “existing” medical conditions.

·         Most plans replace 60 or 70 per cent of income.  But even that can be misleading because those payments can be capped at a certain amount or coverage may be provided only for a limited period.

·         If you’re in a group plan and your employer pays any portion of your premiums, any payments you receive will be subject to income tax.  When you pay the premiums, there are usually no tax consequences on payments to you.

Know what you need

If your group plan has coverage and payout limits, look for individual coverage that can fill in the gaps.  Remember, too, that your group plan is linked to your employment and you could find yourself with inadequate or zero coverage when you change jobs.

Establish how much coverage you can comfortably afford.  The older you are when you purchase insurance, the higher your premiums will likely be. And the more extensive your coverage, the more you’ll likely pay.

When you depend on your own ability to generate an income, you need adequate disability insurance.  A financial advisor or insurance specialist can tailor your coverage to your individual situation.

This column, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your Investors Group Consultant.  Insurance products and services are distributed in Quebec by Les Services Investors Limitée (Financial Services Firm), and elsewhere in Canada by I.G. Insurance Services Inc. (insurance license sponsored by The Great-West Life Assurance Company).