DO NOT TOTALLY DEPEND ON YOUR GROUP LONG TERM DISABILITY INSURANCE! AND THIS IS THE BIG REASON!!!

All of the weaknesses pointed out in my last blog related to terminology: how easy or how difficult it can be to collect benefits, what problems are excluded, and whether you need to be “totally” disabled. I am not trying to say that these issues are unimportant, but they pale in comparison to the issue of whether or not the coverage will be there at all when you need it most.

Group insurance is based on two major assumptions:

(1) You will be working for the firm that offers the coverage when you become disabled and

(2) That firm will still offer the coverage.

Neither of those assumptions is reliable.

We no longer work for one employer. Statistics Canada says that we will have 3 careers and 8 employers on average over our working lifetime. Given that statement, there is at least a solid possibility that the benefits you may have at one point in your working life may not be there when you need them most.

In addition to that, we are seeing a major move to hire under contract, rather than as true employees. There is a solid financial reason why companies are doing this and it is unlikely to change. Canada and the United States are two of the most expensive economies in the world. One of the largest reasons for that is the generosity of employee benefits offered in North America especially as compared to the developing world and China and India in particular. If we wish to be competitive in this changing world, we need to find a way to lower those costs. My sources tell me that employee benefits increase payroll costs by 30%. One of the ways we have chosen to reduce these costs is by reducing or even eliminating employee benefits and leaving it up to the individual worker to protect himself. A modern approach (sometimes referred to as the “cafeteria approach”) consists of the employer advising its employees that $X is available to spend on benefits. They give the employees a list of benefits to choose from and let them choose the ones they want most. For example, the employer may give each employee a budget of $1,500 and list Medical, Dental, Vision, Life Insurance, Dependent Life Insurance, Short and Long Term Disability, etc – each of these with their individual cost indicated. The problem is that many of us tend to think short term without taking the time to truly understand what can impact us most severely.

I am wearing a fairly expensive ($1,500) pair of glasses but if I break or lose them, the financial impact on me is tiny compared to losing my income for 3 to 6 months. On average, a disability that lasts 3 months will most likely extend to 5 years.

Certainly I might break my glasses, but which hurts more? Losing my $1,500 glasses or losing the $250,000 (5 years at $50,000 annually) income that pays for them?

Let’s illustrate what you gain from having even a small personal policy. You are working at a job you like (or do not like). One morning, you find out (or decide) that you no longer work there. Let’s create an ideal scenario:

You are offered your dream job. A job that will allow you to work in a location convenient to home with a group of people you know, like, and respect. A job that matches your abilities, meets your desires, and offers a 50% salary increase. Would you accept it? What would happen if there were no employee benefits available? Would your decision change if you were a Type 1 Diabetic (or had some other significant condition)? This is where you would immediately see the benefit of the personal coverage. It gives you flexibility.

For several reasons, you should have individual disability insurance rather than group disability insurance. The protection offered is superior and you can count on it being there. Why then, do we not all buy individual insurance? There is the minor issue of BUDGET. Group insurance may be mandatory and is always less expensive (you get what you pay for). Recognizing this, what are your options?

First, establish the amount that you can afford to purchase individual insurance and guarantee your right to buy more should your situation change. The higher that amount, the more you can do RIGHT NOW – but any amount will buy you some flexibility and control. In this situation, there are 4 suggestions:

1. ALWAYS buy a 90-day Waiting Period for your individual policy. It costs about 50% of what a 30-day Waiting Period costs (waiting longer than 90 days has very little real impact on the cost; a 120 day Waiting Period saves you about 2.5% - even a 730 Day (2 YEAR waiting period only reduces the cost by about 21% - and you lose potentially 21 months of benefits) 
2. Buy a “Guaranteed Insurability” feature (I might even put this as #1) as this is what gives you the flexibility should you lose your group insurance for any reason;
3. Make sure that you are protected in your “Regular Occupation” for the duration of any claim. You do not want the insurer to be able to say “You are now able to do something else – so we cease all benefits”
4. Purchase some protection against “non total” disabilities.

The “Guaranteed Insurability” feature does two things: it allows you to purchase disability insurance with no proof of health and it guarantees your original occupational classification. Disability policies are priced (and the wording may differ) based on the occupational group the insurer considers your job to fall into. Two things which tend to improve your classification are (1) how long you have been with a given employer and (2) your established level of income. Two things are certain, if you change jobs you lose all of the benefits of #1 and if your income reduces or if you go “on contract”, you most likely lose #2. A properly designed, and priced, individual plan will solve all of these issues.

Click these for more information on the respective topics :
Long Term Care Insurance
Disability Insurance
Critical Illness Insurance
Life Insurance
Mortgage Insurance