Rob Clark BA (Econ.), CFP®, MBA
A person gets injured in a skiing accident, can’t return to work for more than two years, and still needs the same income replacement. Another individual who’s working on estate plans needs a solution to cover taxes payable on estate assets. Someone else just recovered from a heart attack but wants extra time to recover before going back to the workplace. These are just a few examples of situations that can be covered by insurance – but not necessarily by a group insurance plan.
Canadians are fortunate to receive excellent group life and health insurance plans through their employers, unions or professional or alumni associations. But insurance needs can vary widely from person to person, and you may need to purchase your own individual insurance to fill any gaps in your group coverage.
Disability insurance through a group plan is typically very economical compared to purchasing individual coverage. However, you should examine the terms of your group coverage to determine if it meets all your needs. Especially look at the waiting period before benefits begin, duration of disability benefits, maximum monthly benefit and definition of disability.
Say you’d like to be covered if an illness or injury prevents you from working for three or four years, or even longer. One common group plan design is to pay benefits for 24 months while you cannot work in your regular job, then only continue payments if you’re unable to perform any job you’re qualified to perform. That’s great if it suits you, but you could look into personal “own occupation” coverage that pays benefits beyond two years if you’re still unable to perform your regular job.
The maximum amount of life insurance through a group plan is often equal to just two or three times the annual salary. In many cases, that’s not enough to meet a person’s needs, so coverage amount is the first thing to look at.
Also, group plans only offer term insurance, and you may have permanent life insurance needs, perhaps multiple needs. Common uses for permanent insurance include creating an estate for children, covering the tax payable on estate assets, charitable giving and equalizing inheritances when one child receives vacation property or the family business and the other receives life insurance proceeds.
More and more companies are offering critical illness insurance to employees, but it’s still not a standard group insurance benefit. If you don’t have this benefit, you may want to explore personal coverage that provides a lump sum if you suffer from cancer, heart disease, stroke or another covered illness or condition. Even if you have critical illness insurance under your group plan, make sure you’re satisfied with the benefit amount and the range of covered illnesses.
Speak with your insurance advisor if you’d like to find out whether your group life and health insurance plan meets all your financial security needs.
Certain medical conditions could make you eligible for both disability insurance benefits and a critical illness insurance benefit, which makes some people wonder if they need both types of coverage. But the two products are very different and complementary.
First of all, the benefits have different purposes. Disability insurance is sometimes called disability income insurance. Monthly benefits replace a significant portion of your income to support you when an illness or injury prevents you from working. Critical illness insurance isn’t dependent on whether or not you’re working. If you suffer a heart attack, cancer, stroke or other covered illness, you receive a lump sum benefit to use in any way – covering out-of-country treatment, private nursing, home modifications or whatever you wish.
Here’s an example of the advantage of having both types of coverage. Kyle suffers a back injury in a car accident and can’t work for two years. Disability benefits will cover his mortgage, cost of living and even retirement savings contributions. Years later, Kyle has a heart attack, but doesn’t receive disability benefits because he’s able to return to work before the end of his 120-day waiting period. He does, however, receive his tax-free critical illness insurance benefit 30 days after the diagnosis.
Each person has their own insurance needs. You may be absolutely fine with only one of the two coverages, but do consider the advantages of having more comprehensive protection.