Disability insurance can protect finances

Individuals buy homeowner’s insurance in case the roof caves in, and collision insurance in case the car gets banged up.

But the money machine that pays for these things often goes uninsured, or under-insured.

That money machine is your ability to earn income, and if you are injured, become ill or disabled and are unable to work, the money machine will stop producing cash.

How, and for how much, you insure yourself depends on your earning power, your dependents and other insurance coverage you may have through your employer. But most people don’t understand the details of their group insurance plan. They may not realize until it’s too late that the plan falls short of their specific needs. A group policy is tailored to the average person, and it may not be adequate to meet your particular need.

The most important part of your group disability plan is sometimes difficult to find in all of the paperwork. It’s the definition of disability.

You are only covered if you are disabled as defined in the policy. Because different plans define disability in different ways, it is important to have an understanding of what qualifies as a disability under your plan.

Two common definitions in policies are "any occupation" meaning if you can do any work you are judged not to be disabled, and "regular occupation" whereby you are judged to be disabled if you cannot do your regular work. Many plans are a combination of the two.

If an accountant were to lose their short-term memory, they could no longer work as an accountant, but they might be able to get a job at McDonald’s. If they didn’t have the right kind of plan, their disability coverage might not kick in because they are still able to "work".

Also, if you change jobs, you won’t take that group coverage with you. If you are counting on a disability plan to replace your income, you may need to get a supplemental policy. The cost will vary depending on age, risk level of your job and the amount of coverage. Premiums for an oil rig worker will be more than for someone who works in an office.

While disability insurance is designed to replace regular income, if someone becomes seriously ill, there can be other financial demands that exceed day-to-day expenses.

These could include drugs or treatments that aren’t covered by provincial medical plans, treatment outside of the United States or home modifications to accommodate a disability.

Many people now are looking at critical illness insurance to protect themselves against the financial impact of a diagnosis of a critical illness. Young workers, especially, may find that in the event of a critical illness they do not have adequate resources they can liquidate in order to deal with the situation. Critical illness coverage provides funds — usually a lump-sum payment — if you are diagnosed and survive a specified illness. The money can be used for any purpose.

Nobody wants to accept a radically reduced quality of life in the event they become disabled. Insuring your income stream is one way to prevent that from happening.

It can happen when you least expect it. With life insurance, you’re buying it to protect somebody else. But with disability insurance, you will still be around to live with the consequences.

Visit QuoteRetriever.com to receive comparison quotes for all types of insurance discussed in this article.