A Guide – Professional and Business Owner Disability Insurance Planning

You can not buy proper home insurance if your house is on FIRE and if you wait until you are sick or injured to look at your Disability Insurance contract, the fine print may surprise you.

1 in 3 Canadians will become disabled for a period of more than 90 days at least once before the age of 65. For those that are disabled for more than 90 days the average length of that 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 under a group insurance plan, taking the time to dust off that benefit booklet for a review sooner than later may be a good idea. Typically, group insurance plans will have a NEM (Non-Evidence Maximum) of $4,000 to $5,000 depending on the size of the group and nature of the business. This NEM will limit the monthly benefit a high earning owner or professional would receive while providing rigid guidelines on when to return to work and in what capacity.

Disability Insurance contracts can pay up to 66.7% of pre-disability earnings of high earning professionals or business owners with a completed application and medical exam. Built in features such as “Own Occupation”, “Additional Insurance” and “Residual and Partial Disability” are often NOT be included in group insurance plans and will have a significant impact come claim time. A review and understanding of these options is worth considering. More detail on each term mentioned above is provided below:

– Own Occupation: If you are unable to perform the substantial duties of your regular occupation due to injury or sickness, you would still be considered totally disabled if you choose to work in another occupation. Group Insurance Plans, will have an “Any Occupation” definition.

– Additional Insurance: Guaranteed insurability up until the age of 55 as long as you are not disabled and your income justifies the increase.

– Residual/Partial Disability: You are not totally disabled but are un-able to work in a full time capacity. You would receive a portion of your monthly benefit to compensate for this decrease in earnings.

If you became disabled would your business continue to generate the same profits? Many business owners are so heavily involved in their operations that they find it difficult to take a sick day, let alone not show up for extended periods of time. Disability insurance planning for business owners and working professionals is often overlooked but a key part of the income protection mix.

Group Insurance LTD – The Need to Know

As mentioned, pay attention to the Non-Evidence Maximum (NEM). This is the maximum amount of disability benefit you would be entitled to without providing medical evidence. You may be eligible to receive higher coverage if you take a medical examination and complete an application as explained above.

Be aware that LTD benefits are usually offset (reduced), by any disability benefits you might receive from CPP/QPP or Workmen’s Compensation. Any benefits paid as a result of an accident from an automobile insurance plan may also reduce your LTD benefits.

If the LTD premium is paid by you personally then the benefit will be received tax free.

In groups where the employer pays the LTD premium, then the benefit when received will be taxable. Should this be the case, make sure you discuss with your employer or insurer what your options are for having tax withheld if disabled so there will be no nasty surprises come tax time.

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