A Guide to Professional and Business Owner Disability Insurance Planning

If your home is on FIRE, you can’t buy proper home insurance and the fine print may surprise you if you wait until you’re sick or injured to look after your Disability Insurance contract.

1 in 3 Canadians will be disabled for more than 90 days at least once before age 65. For those who are disabled for more than 90 days, the average length of this disability is 2.9 years. Despite the statistics, many professionals and business owners often overlook or delay proper disability insurance planning.

For business owners and professionals covered by a group insurance plan, it may be a good idea to take the time to review this benefits booklet for a review sooner or later. Typically, group insurance plans’ NEM (Non-Evidence Maximum) will be between $4,000 and $5,000, depending on the size of the group and the nature of the business. While this NEM provides strict rules about when and in what capacity to return to work, it will limit the monthly benefit a high-earning owner or professional will receive.

Disability Insurance contracts can pay up to 66.7% of pre-disability earnings of high-income professionals or business owners with a completed application and medical examination. Built-in features such as “Own Occupation”, “Additional Insurance” and “Residual and Partial Disability” are generally NOT included in group plans and insurance will have a significant impact at time of claim. It is worth considering and understanding these options. More details on each of the terms mentioned above are given below:

– Own Occupation: If you are unable to perform important duties of your normal occupation due to injury or illness, you will still be considered fully disabled if you choose to work in another occupation. Group Insurance Plans will have the designation “Any Occupation”.

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Supplementary Insurance: Guaranteed insurance up to age 55 as long as you are not disabled and your income justifies the increase.

– Residual/Partial Injury: You are not fully disabled but cannot work full time. To compensate for this decrease in earnings, you receive a portion of your monthly earnings.

If you were disabled, would your business continue to make the same profit? Many business owners are so heavily involved in their operations that they find it difficult to spend a sick day, let alone stay out of sight for long. Disability insurance planning for business owners and working professionals is often overlooked, but it is an essential part of the income protection mix.

Group Insurance LTD – What You Need to Know

As noted, pay attention to the Non-Evidence Maximum (NEM). This is the maximum amount of disability benefits you can receive without providing medical proof. You may be eligible for higher coverage if you undergo a medical examination and complete an application as described above.

Note that LTD benefits are usually offset (decreased) by any disability benefits you can get from CPP/QPP or Workmen’s Compensation. Any benefit paid as a result of an accident from an auto insurance plan can also reduce your LTD benefits.

If the LTD premium is paid in person by you, the benefit will be tax-free.

In groups where the employer pays the LTD premium, the benefit received will be taxable. If this happens, be sure to discuss with your employer or insurer what your options are for tax deductions if you become disabled so you don’t run into any nasty surprises when tax time comes.

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As you can see, there are many options and details to consider when it comes to Disability Insurance Planning for working professionals and business owners. It may be time to reveal your scope and conduct a review to make sure you have a clear understanding of the definitions in your current program and what alternatives may be available.

About Lily Hammond

I have been working as an insurance consultant in my own insurance agency since 1998. Because I've been doing this for so long, I know every detail and I'm here to help you. You can find my e-mail address and work phone on the contact page.

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