Disability insurance (salary insurance) 10 things to do to avoid surprises

If you couldn’t work because of an accident or illness, how would you pay your bills?

Disability insurance is designed specifically for workers. A disability insurance contract may allow you to receive benefitsA benefit, or insurance benefit, is an amount of money that an insurance company pays a person further to a loss against which they were insured. to replace a portion of your income in the event you become unable to work. It’s one of the most important types of insurance you can have.

Here are 10 things to do to avoid surprises.

There are two main ways you can obtain disability insurance:

  • Through group insurance offered by an employer, professional association, union or other entity or organization. Disability insurance provided through a group insurance plan is often mandatory. Sometimes the employer pays all or part of the premium.
  • Through personal insurance. Personal insurance is for workers who don’t have group disability insurance or who have it but the coverage is not sufficient for their needs.

Ask about what is and isn’t covered

1. Types of disability covered

If your doctor concludes that you’re disabled, you won’t automatically receive disability benefits. Your doctor provides a medical opinion, but the insurer, not the doctor, determines whether you meet its criteria for receiving benefits.

While the insurer obviously takes the doctor’s opinion into account, it also considers the disability definition in the contract. That definition varies with each contract. A number of definitions may be used, including:

“Own occupation”

  • To receive disability benefits, you must be unable to perform all the duties of your regular occupation. 
  • This type of contract, because it is easier to meet the disability definition, is generally more expensive than one that uses an “any occupation” definition.

“Any occupation”

  • To receive disability benefits, you must be unable to perform the duties of any gainful occupation for which you are qualified or may reasonably become qualified by education, training and experience.
  • This type of contract is less expensive than an “own occupation” disability insurance contract. Ask yourself whether you would be willing to change occupations if you were to become disabled.

Some insurers will not consider you disabled unless you’re under the care of a physician.

Many insurance contracts contain more than one disability definition

For example, the “own occupation” definition may apply for the first 12 or 24 months of disability and then the “any occupation” definition may apply after that time. When the “any occupation” definition clicks in, if you are unable to resume your former occupation but are able to perform another occupation, you will no longer be considered disabled even if your medical condition is unchanged. As a result, you will cease to receive benefits.

Suppose a forestry worker injures his leg and is no longer able to walk…

He is unable to perform his own occupation for at least a few weeks. However, he may still be fit for office work.

If his contract uses the “own occupation” definition of disability, the insurer will consider him disabled and pay him benefits. If the contract uses the “any occupation” definition of disability, he will not be considered disabled and not receive any benefits, as he would be able to perform another occupation.

Check the disability definition in the contract.

Warning

Some insurance only covers injuries

To be sufficiently protected, you need insurance that covers disabilities resulting from both injury and illness. If your insurance only covers disabilities resulting from an injury and you become disabled as a result of an illness, you may not receive any benefits.

Important! Injury-only disability insurance may appear at first glance to be more advantageous than it really is because it is less expensive than insurance that covers you no matter the cause of disability.

End of the warning

2. Exclusions

Insurance contracts contain exclusions. Here is a list of them. However, not all of these exclusions appear in every contract, which is why it’s important to choose your insurance carefully based on your needs. For example, some contracts cover psychiatric, psychological and emotional disorders—which are common causes of disability—while others don’t. If you want to be covered for these risks, make sure the contract includes them.

Pre-existing conditions:

Illnesses with symptoms that began before the insurance was purchased are called pre-existing conditions. Usually, a contract will exclude most causes of disability for which you became aware of a symptom or received a diagnosis in the two years before the insurance became effective.

If you fail to report a pre-existing condition to the insurer during the first two years you are insured, the insurer may exclude or limit the coverage.

If a condition presents itself after the first two years of coverage, the insurer may not exclude or limit the coverage, except in the case of fraud.

Injuries suffered while:

  • Driving while impaired
  • Using non-prescription drugs or misusing prescription drugs
  • Attempting to commit suicide
  • Committing a criminal offence

Certain conditions, including:

  • Chronic fatigue syndrome or chronic pain syndrome
  • Fibromyalgia
  • Epstein-Barr syndrome
  • An environmental illness or multiple chemical sensitivity
  • Psychiatric, psychological, emotional, mental or nervous disorders, such as depression, anxiety, stress and burnout.

Injuries caused while engaging in high-risk activities such as:

  • Bungee jumping
  • Freestyle skiing or snowboarding
  • Ski jumping
  • Skydiving
  • Street luge or skeleton
  • Mountain or rock climbing with or without ropes
  • Participation in ultimate fighting competitions
  • Disability resulting from cosmetic surgery

You practise an extreme sport?

Find out from your insurer whether you would be covered if you were injured while practising it. Some insurers won’t cover disabilities resulting from the practice of an extreme sport, while others will cover them for an additional premium.

Insight

It is very important the disability insurance you choose is suited to your needs.

An authorized representative This link will open in a new window can help you find the right coverage.

End of the insight

Misrepresentation or material omission

The questionnaires and interviews you need to complete to purchase disability insurance can be complex and difficult to understand. If you fail to disclose a “material fact,” the insurer may deny your claim in the event of a disability, regardless of whether there is a relationship between the cause of disability and your omission. A “material fact” includes, without being limited to, a consultation with a physician establishing the first signs of an illness, an existing health problem or a symptom of an illness.

You must disclose your condition to your insurer when purchasing the insurance, at which time the insurer may decide to, among other things:

  1. Refuse to insure you
  2. Insure you, possibly with a higher premium
  3. Insure you but exclude in writing any disability that may be related to the material fact. If such a disability is not excluded in writing, it will be covered because you will have disclosed your condition.

Here’s an example:

Marc did not disclose the fact that he had consulted an oncologist about a tumour. A few months later, he had an accident and broke his leg. His insurer checked his medical record and found out about the oncology consultations. The insurer cancelled the contract, even though there was no link between Marc’s omission and his accident. Marc did not receive benefits for his disability.

3. Additional coverage

Several options may be offered, including:

  • Return of premium: some contracts allow you to recover a portion of the paid premiums after a few years if no or very few claims have been filed by you (definition in the insurance contract).
  • Disability waiver of premium: most contracts don’t require premiums while paying a benefit.
  • Cost of living adjustment (COLA): some contracts provide for an annual rate of benefit increase (e.g., 3% or 5%) to offset the effect of inflation.
  • Family compassionate care: this rider enables you to receive a monthly disability benefit if you have to stop working to care for a terminally ill family member.

Ask about the benefits

4. Waiting period

The waiting period is the period of time at the beginning of a disability during which an insured is not entitled to the insurance benefit even though they are disabled. The waiting period varies from contract to contract.

If you have a sick leave bank, you could draw on it during this period. Some contracts do not have a waiting period for certain types of health problems (e.g., hospitalization or day surgery).

5. Duration of benefits

There are two types of disability insurance: short-term and long-term.

Short-term disability insurance

This insurance pays benefits for a limited period of time (e.g., between 15 weeks and 6 months). If you don’t have short-term disability insurance, you may be eligible for various government benefits, such as Employment Insurance (EI) This link will open in a new window or IVAC (Crime Victims Compensation) This link will open in a new window disability benefits.

EI benefits can replace up to 55% of your income (to a maximum amount that is established from time to time) if you are unable to work. You won’t receive benefits during the first week of disability. EI benefits are paid for up to 15 weeks.

Long-term disability insurance

This insurance generally begins paying a benefit when short-term disability insurance or EI benefits This link will open in a new window end. Depending on the contract, it can pay benefits for up to 2 years, 5 years, or until a specified age (e.g., 65).

6. Taxation of benefits

Disability benefits may be taxable if, for example, the employer pays a portion of the premium. If in doubt, ask your employer or insurer.

7. Coordination of benefits

The insurer may limit the amount it pays if you receive benefits from another source (e.g., a government program or another insurer). A contract will usually provide for a reduction in benefits if you are already receiving money from a public plan such as those operated by the CNESST, the SAAQ, Retraite Québec and IVAC. This ensures that the benefits you receive from social programs or your disability insurance, when combined, do not exceed your pre-disability income. The insurer may do this by, for example:

  • Limiting the amounts it pays to you to take into account the amounts you are already receiving from other plans
  • Having the public plan pay the amounts to it and then paying you the benefits set out in your contract. In other words, you will only receive the amounts specified in your contract.

The insurer may also limit the amounts it pays to you if you work part-time while you are disabled.

Ask about the contract costs and term

8. Duration and cost of insurance (premium)

Some types of insurance provide coverage up to a certain age (e.g., 65). Others provide coverage for only a few years but are renewable after that. If the contract is renewable, check the following points:

  • Up to what age can you renew the contract?

    • At what price?

    • Is renewal guaranteed or will the insurer ask for evidence of good health?

    • Can the insurer add exclusions to the renewal?

    • Will you be able to renew your coverage if you are receiving disability benefits at the time of renewal?

  • What happens if you change occupations?

Check the both the current premium and the future premium carefully, as contracts vary widely. For example:

  • The premiums are fixed (level) for the entire term of the contract. Check the term of the contract: one year, five years, up to a certain age (e.g., 65).

  • The premiums may be increased.

9. Factors affecting the premium

The premium is affected by a number of factors, including:

  • Age—The older you get, the more expensive insurance may be owing to the increased risk of illness.
  • Family history
  • Health condition—The healthier you are, the less expensive the insurance.
  • Payment amount in the event of disability—The higher the amount, the more expensive the insurance.
  • Disability definition—Insurance that pays benefits when you are unable to perform your own occupation is more expensive than insurance requires that you be unable to perform any gainful occupation.
  • Duration of payments—The longer the period of time that the insurance can cover a disability, the more it will cost. For example, some insurance contracts stop paying benefits after two years of disability, while others may continue to pay benefits until age 65.
  • Premium—The longer the period of time that the premium is level (fixed), the higher the initial cost
  • Waiting period—In the event of a disability, the longer the waiting period before benefits are paid, the less expensive the insurance is.
  • Occupation—The more disability risks that are associated an occupation, the more expensive the insurance.

Determine your insurance need

10. Amount of benefits

How much insurance should you get? If you are covered by group disability insurance, you generally don’t choose the amount of insurance. However, you can purchase additional insurance when you need to (e.g., with personal credit insurance).

Factors to consider when choosing the amount you may need in the event of a disability include:

  • Your current insurance coverage
  • You current expenses and savings and your anticipated expenses and savings in the event of a disability, including:
    • Debt payments
    • Money saved for retirement or your children’s education
    • If you own a business, the business’s overhead costs if it had to stop operating as a result of your absence.
  • Sources of non-employment income
  • Your resilience (would you be willing to change occupations if you were to become disabled?)

Be sure to check what benefits you may receive if you become disabled. Are they taxable? If they represent a percentage of your income, what income is being referred to, gross or net?

Ask an authorized representative to help you assess your needs so you can choose the right insurance for you.

Business overhead expense (BOE) insurance

This insurance specifically covers a business’s ongoing expenses if the business owner is unable to work owing to a disability. Examples of ongoing expenses include employee wages, rent, mortgage interest and property taxes. Your disability must cause a decrease in business income. This coverage may sometimes be included in a disability insurance contract.

Some things to check before purchasing personal disability insurance

Make sure you have your medical information on hand, including consultation dates, so you can accurately disclose your current health condition.

Check that…

  • The representative offering the insurance is authorized to do so
  • The premiumA premium, or insurance premium, is an amount that a person or company must pay on a regular basis to keep their insurance in effect. For example, if Mary has to pay $200 per year to keep her life insurance in effect, then the premium is $200.
    The premium should not be confused with the face amount, or insured amount, which is the amount that the insurance company has to pay out. In the same example, if Mary has life insurance that pays $100,000 to Peter upon her death, then the face amount is $100,000.      is within your budget

Find out…

  • Whether the contract is renewable and, if so, at what price and on what conditions
  • What the waiting periodThe waiting period is the period during which an insured is not eligible for insurance benefits, even though the covered risk may have occurred. For example, in disability insurance, an insured may be disabled but not receive money from their insurer during the first two weeks of a disability. is
  • What the disability benefitA benefit, or insurance benefit, is an amount of money that an insurance company pays a person further to a loss against which they were insured. amount is
  • What the maximum duration of the disability benefits is
  • What disability definition is used in the contract (unable to perform your own occupation vs. any other occupation) and whether the definition changes if the disability extends beyond a certain period of time (e.g., 24 months)
  • Whether the contract covers only disabilities resulting from accidents or also covers illnesses
  • What the main exclusions are. Are psychiatric, psychological, emotional, mental or nervous disorders such as depression, anxiety, stress and burnout excluded? If so, this limits coverage considerably. You may want to look for a contract that doesn’t contain such exclusions
  • What optional benefits are available, such as return of premium (ROP) and cost of living adjustmentIndexation is the adjustment of income (annuity, salary, etc.) or an expense (rent, etc.) to fully or partially offset cost of living increases. (COLA)

Insurance covering the balance of a loan

A lender could require you to insure your loan so that it is repaid if, for example, you become disabled. However, the lender cannot require you to purchase a specific insurance product or choose a specific insurer. 

 

Learn more

You may also be interested in the following articles

Disability insurance: 8 questions answered

Critical illness insurance

Long-term care insurance

The cost of illness This link will open in a new window (in French)

Documentation and tools

Civil Code of Québec, chapter 15 – Insurance This link will open in a new window