Individual Disability InsuranceRed Line

Pop quiz: What is your most important asset?

a. your house
b. your car
c. your ability to earn an income

The answer: c). Your ability to earn an income is the most important asset you have. You most likely earn money faster than your home appreciates. (And then there’s your mortgage balance.) Your car is probably depreciating as we speak. And without your earning power, any other assets are in jeopardy.

Essentially, anyone who needs a paycheck should consider individual disability insurance so you can protect yourself and your family with a policy that will replace your income in the event of a disability.

How long will your savings last if you are unable to work? How will you provide for your family, even if you suffer from a long-term disability? Are you aware of benefits provided by your employer or government plans? Your Orr Insurance & Investment Broker can help you answer these questions, and provide options to protect you and your family’s financial livelihood.

Income Protection for Individuals

As mentioned above, the main reason for purchasing individual disability insurance is to replace your income if you become disabled. The premium you pay will depend on what your occupation is. For instance, if you are in a higher risk occupation your premium may be higher than if you were in a low risk occupation. Here is an example of a claim:

  • Bill is a construction worker, working full-time.
  • Bill purchases $2,500/month in individual disability coverage, with a 30 day waiting period.
  • Bill is in a car accident, and after approval of his claim and the 30 day waiting period he starts receiving $2,500/month, tax free. As long as bill fits the definition of disabled within the policy, he will continue to receive the benefit.

Disability Insurance for Business Owners

As a business owner, you need to protect your ability to earn income for the business. Business owners often purchase disability insurance for the following reasons:

Buy/Sell Agreement: a buy/sell agreement is typically between two partners who want to ensure that if either of them become disabled there is a plan in place to buy that individual out. Funding the buy/sell agreement with disability insurance would look something like this (as an example):

If a partner becomes disabled and is unable to work for 2 years, the remaining partner(s) will buyout the disabled partner’s shares with the disability proceeds.

This would give much needed cash flow to the disabled partner and allow the working partner(s) to proceed without the financial burden of the disabled partner going forward.

Key Person: this type of disability policy would be coverage on a “key” employee who is essential to the financial well-being of the business. For example, a restaurant owner may purchase a key person disability policy on the head chef, because the business would suffer if that chef became disabled/unable to work. The disability proceeds would flow back into the business to help bridge the gap financially while finding a new chef and/or training one.

Business Overhead Expense: this type of disability policy is designed to help pay for a disabled partner’s share of the expenses while they are off work. For example, if there are two owners and each’s share of the expenses for the business is around $5,000, disability insurance can be purchased to cover both owners for that amount. If one owner becomes disabled, the business receives the amount of coverage monthly to cover those expenses. Eligible expenses are wide reaching: employee’s salaries, rent, utilities, equipment expenses, etc.

Individual Income Replacement for Business Owner: many self-employed individuals who are the sole income earner for their business are interested in purchasing disability insurance to cover themselves. There are a few requirements to be eligible for this as a sole business owner, but your Orr Insurance & Investment Broker will help guide you through that process.

Available “Add-ons” for Disability Insurance Policies

There are many different “add-ons” that can be included in some disability policies:

Cost of Living Adjustment

  • If you are on claim, this add-on will allow your benefit to increase with inflation year after year.

Premium Refund

  • Some policies allow for a return of premium add-on.

Partial Disability

  • This add-on is designed to help you get back to work a few days at a time. The policy will pay out the days you are unable to work each week.

Own Occupation

  • This add-on is sometimes defined differently between insurers, but typically allows you to work elsewhere for a number of years, and receive the benefit only if you’re unable to perform the regular duties of your own occupation.

Frequently Asked Questions

Question MarkWhich conditions account for most disability claims?

  • This is always changing, but more recently the leading cause for disability has been musculoskeletal problems. Other conditions that are prevalent are Psychiatric/psychological disorders, nervous system conditions, accidents, cancer, heart and circulatory conditions, blood/immune system conditions, respiratory conditions, etc.

Question MarkAm I more likely to become disabled later in life?

  • No. Disability affects people from all ages and all walks of life. It’s important to consider protecting your income with disability insurance as soon as you’re eligible for coverage.

Question MarkCan I increase my coverage amount after the policy is in force?

  • Yes – this is an optional “add-on” for some policies that can be added to the base policy to ensure that you can increase coverage later on without answering health questions.

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Your Orr Insurance Broker can help you determine the appropriate disability insurance for you and/or your business, provide tips on how to prepare for retirement, and shop the market for the policy options and premiums that work best for you.

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