How Does Disability Insurance Work When You Can’t?

At its core, disability insurance replaces your income if you become sick or injured and can not work.  This removes stress by helping pay your bills and allows you to focus on your recovery instead of stressing about finances.

Many Canadian professionals receive disability insurance through their employer, so they think they’re covered in case they get injured or suffer a serious illness. But, there are many different kinds of coverage – and you might be surprised at what that coverage actually gets you.

As well, the job market is very different from what it was just a decade or two ago – instead of hanging on to jobs for life, we can change jobs or even change careers every 3 to 5 years. It’s not uncommon for people to be injured or fall ill while in between jobs; sometimes it takes a few weeks / months for a company’s insurance to kick in – and in the meantime, bad luck happens.

For many Canadians, purchasing private disability insurance is going to get them the coverage they actually want – when they need it. Let’s go over the basics.

Disability Insurance 101

First off, it’s important to point out the basic fact that you can only get disability insurance coverage if you’re currently employed and earning an income.

If you have any disability benefits set up through work or a government program, they usually don’t replace all of your income.  And they are set up to get you back to work as quickly as possible.  What you really want to look out for is the “definition of disability” that is included in your work plan.

Now, this can be worrying for many professionals.

In many cases, work disability coverage has a limited time period that it will pay out – and then will push you to go back to work – any work.

Let’s look at how this plays out in practice. Say you’re a Chief Technology Officer for a major firm, making $200,000 a year. You try to stay fit, but the genetic lottery treats you poorly and you suffer a stroke. You are hospitalized, but a fast response gives you the opportunity to come back from what could have been a permanently debilitating event.

After two years of a difficult recovery, you are judged to be recovered enough to go back to work – and if you don’t try, you could be cut off from your insurance coverage.

The job at your old firm is no longer available and you’re finding it difficult to get a position similar to your old one. In fact, while you’ve made an impressive comeback, your ability to deal with technology is still hampered as your recovery is still ongoing. The insurance company tells you that your coverage is slotted as ‘Any Occupation’ and gives you an ultimatum: “Get a job – any job. Be a department store greeter. Be a fry cook. You have to go back to work.”

Obviously, the former CTO isn’t going to be earning the same wage he did as an executive – and if he had additional time to recover, his job prospects might look a lot brighter. But after two years, the insurance company isn’t giving him a lot of options. The ‘great’ insurance coverage the former executive thought he had isn’t nearly as good as it needs to be.

Get the Disability Insurance You Actually Need

There are different kinds of disability insurance. To avoid the dark situation outlined above, many Canadian professionals choose a better kind of insurance.

To take another example, we have a doctor. She has an accident and can’t go back to work as a doctor. With disability insurance covering ‘Regular Occupation’, the doctor would not be pressured into working at a fast food franchise – instead, they would only need to take on work that was roughly equivalent in work level and expertise required, such as teaching medicine at a university.

At the highest level, there is ‘Own Occupation’ insurance – and if the heart surgeon in the example above had this, they would be covered for their earnings even if they could never work as a heart surgeon again. It should be noted that this level of insurance is difficult to get; indeed, most work environments will not offer it.

This is why it’s so important for professionals with financial responsibilities, who have dependents, to look at their options of what’s available through private insurance providers. If your work isn’t going to insure you to the level you need, we can show you options that will give you the peace of mind and coverage you want.