Debt-Free Forever Gail Vaz-Oxlade (best ereader for epub TXT) 📖

Write their names on pieces of paper and drop ‘em in a hat. Now write your own name and drop it in the hat. Pick out one name. There’s a 92% to 98% chance that person will become disabled. How sure are you that it won’t be you?

Imagine the horror of being diagnosed with a progressively debilitating disease. Imagine the relief of knowing that while you have to stop working, you have a group disability plan that will help to make ends meet. Imagine your disbelief when your claim is declined by the insurance company because you just aren’t disabled enough in their eyes. It happened to a girlfriend of mine, and it could happen to you. If you want to avoid a nasty surprise just when you can least afford it financially and emotionally, take these questions below to your benefits administrator at work and make sure you understand the answers you’re given.

1. What’s the policy’s definition of “disabled,” and how long will benefits be paid? If you can’t do the job you were hired to do, will you be paid regardless of what other work you may be able to find? Will partial benefits be paid if you can only work for a few hours a day? A weak definition of disabled can be one of the biggest holes in a plan. Carol had a disability plan that covered her for her “own occupation” for two years, after which it reverted to “any occupation,” which is pretty typical of a group plan. The only way Carol could continue to collect after two years is if she were unable to do any work at all. If the insurance company deemed she could be a parking lot attendant, they wouldn’t pay.

Don had a good group policy that paid out when he became disabled with a severe joint disorder. When his insurance benefits stopped coming two years later, Don wasn’t prepared for the interruption in his income; he wasn’t familiar with his policy and how his benefits would be paid out. Had he been familiar with the fact that the initial coverage was only for two years and further documentation would be needed to prove ongoing disability, he could have started his doctor on his documentation before his coverage ran out. Instead, his credit took a big hit because with no money coming in, he had no other option.

2. How much am I covered for, and how will it be taxed? Most group policies cover employees for a certain percentage of their salaries—often somewhere between 60% and 75%. Some also have a cumulative maximum. But many people have no idea how much they’re covered for or even if their disability income will be taxed. This happened to my girlfriend Kathryn, who thought she’d be facing a tax bill on her disability income. Kathryn is a teacher, and I was pretty sure her benefits were tax-free. So we called and asked and, sure enough, she was in the clear. Many group policies paid for by an employer generate income that is taxed. If you pay the premiums directly from your after-tax income, or if your premium is a taxable benefit, then the money you receive on a claim can be considered tax-free. If you find that the income you receive from your disability coverage is taxed, the next question is: will the money be enough once tax is taken?

3. Does my policy have a residual disability feature? In the case of a slow recovery or a slow deterioration from a progressive disease, this feature becomes very important. Without it, years may pass before your claim can begin because you must meet the insurance company’s definition of “totally disabled.” That was the humbug in my girlfriend Cookie’s case. While she couldn’t work, the insurance company refused to accept that she was 60% disabled and wouldn’t pay up. Not until she got herself a lawyer, anyway. Since most group plans have limited benefits for residual disabilities, the seams of your safety net may not be as strong as you think they are.

4. What are the exclusions on my policy? An exclusion is something you aren’t covered for, and typical exclusions include travel outside Canada, pre-existing conditions, mental or nervous disclosure, and alcoholism. The list can be wide and varied. And if your malady falls within the list, you’ve got a hole in your safety net.

People often don’t carry individual disability insurance because they believe their group coverage is fine. Smart people who want to make sure that they and their families are well protected don’t rely on the off-the-shelf version. They look to an individual policy to supplement it. The other important point in favour of an individual policy is that you may not always have your group plan. A change in jobs, the decision to stay home to raise a family, or self-employment could all leave you with no coverage.

Buying disability coverage is complicated. There are rigorous health criteria, and you must also show proof of income relative to the coverage you’re applying for. That often excludes new entrepreneurs from coverage at least until they have a two-year earnings history. And as you get older, not only does coverage get more expensive, it becomes more difficult to qualify.

You absotively, posolutely need the help of a qualified insurance adviser when you go shopping for disability insurance. With so many sizes and styles out there, it’s very easy to buy one that looks good on the hanger but just doesn’t fit. Using a generalist will get you in trouble. The good fit comes with a fine tailor who can custom-make a disability plan just for you. When you’re shopping for an individual plan, look for the following:

A policy that it is non-cancellable and guaranteed renewable so that the contract cannot be changed or cancelled just when you may not qualify for another plan.

An inflation rider or a cost-of-living rider, which is a good way to increase your monthly benefits. While expensive, it is critical when