5 Sep

Disability Insurance – Why You Should Purchase It?

Your ability to earn an income is one of the most valuable things you own. Yes, a house, financial assets and priceless heirlooms are wonderful too, but if you had nothing, or lost everything, being able to work and earn a living gives you your best shot at regaining the standard of life you want.

Since your earning power is so important, it makes sense to protect it, and that is where an Alberta disability insurance comes in – it pays you a portion of your monthly income should you become disabled in a way that is named in the policy.

Two Types of Disability Insurance

Individual policy: This is a disability insurance policy that you purchase from an agent, broker or bank employee. The policyholder pays the premium and is also, typically, the life insured and the beneficiary as well.

Group disability insurance: This is a disability insurance policy where the policyholder is your employer, association, union or whichever large group is providing or co-sponsoring benefits on your behalf. The policyholder pays or co-pays the premium while the employee or group member is the life insured and the beneficiary. Group insurance is typically cheaper than individual insurance since premiums are underwritten on the characteristics of the group, rather than an individual.

Those with health conditions that could exclude them from getting a policy, or that could cause them to have a rated (more expensive for the same coverage as a peer without a health condition) policy, usually rely on group disability insurance, if they are fortunate enough to have an employer or other such plan sponsor.

It is always prudent, however, to ensure you have enough coverage. Your group policy may not be enough – but be very cautious about over-insurance: no matter how many disability insurance policies you have, you can only collect a certain percentage of your income. If you have too many policies whose benefits equal or exceed your income, you are paying for insurance that you cannot fully use.

Subsets of Individual Disability Insurance

Creditor disability insurance: When offered a credit card or loan, you may be offered creditor disability insurance. This transfers the financial risk (your ability to make a minimum payment) to a third party should you become disabled in a way that is named in the policy. Note that in most of these policies, the definition of disability can be very hard to meet, and there is typically a 90-day waiting period in which you must still make the payments.

Mortgage Disability Insurance: This is very similar to creditor disability insurance, except it pays your mortgage payments while you are disabled. Your bank or mortgage lender will typically offer you this coverage when you purchase a dwelling. However, the underwriting is limited (which can make it difficult to validate a claim) and the bank is the beneficiary. Consider the benefits of an individual disability policy in which you use a portion of the benefit to pay your mortgage. Remember, you can’t have an excess of policies, so you need to ensure you have enough disability coming in for your personal expenses too, not just the bank. There are pros and cons to mortgage insurance. A broker can help you decide which route is best for you.

What is a Broker?

There are three ways to get disability insurance. An agent, a broker or a bank.

A captive agent works for one company, such as SunLife, Manulife, BMO, Canada Protection Plan, etc. They can only sell you the products of their company. A bank representative also works for one company – their bank. They, too, are limited in the amount of options they can present to you.

A broker is a freelance insurance agent. Rather than working for one company, a broker works directly for you. They must qualify for and maintain a licence like any other agent, but because they don’t sign on to one company or bank, they can sell the products of any carrier in the province. This provides you with a lot of options. Brokers compare the market on your behalf and make a recommendation after reviewing your needs and the policies that fit your needs.

Why Should you Purchase Disability Insurance?

Disability insurance helps you stay afloat by paying a portion of your income should you meet with an unfortunate accident or illness. Talk to an agent, broker or bank representative today to ensure you have the coverage you need.

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