The statistics are compelling. According to the American Council of Life Insurers, one third of all Americans between the ages 35 and 65 will become disabled for more than 90 days and one in seven workers will be disabled for more than five years. The statistics are very similar for Canada. While most Canadians can appreciate the value of life insurance, statistically speaking, you are more likely to be disabled for at least 90 days before age 65 than you are to die. We understand the need to insure the most valuable things in our life and would never consider forgoing home or car insurance, but for most of us, our most valuable asset is our ability to earn an income. Take your annual salary, multiply that by the number of years you have left until retirement - I bet you it is a large number (and that does not include future salary increases)! That future income is what disability insurance is designed to protect. As you can see, depending on your age and severity of the disability, being disabled could end up being a much larger burden on your family than dying.

Despite these statistics, many workers remain underinsured and often do not realize it. One of the major reasons is that many people assume that their group disability policy at work will replace their full monthly income. Most of the times it won't, and the gap is often significant.

First, understand that disability insurance-whatever the source-will not replace all of your pre-tax income. At a maximum, your total insurance sources won't replace more than 70 to 80 percent. Now let's imagine the unimaginable: tomorrow you were injured or diagnosed with a life-threatening illness, and unable to earn any income for months, a year or more, or perhaps permanently. Who would pay your bills, support your family and maintain their standard of living? Would you have sufficient non-insurance sources of income to live on at least comfortably, keeping in mind you may have additional expenses associated with your disability? How far would your spouse's income go towards maintaining your family income? How long would your savings last? If it is not enough, then you need insurance to fill the gap.

If the disability is work-related, you may be eligible for workers compensation. An auto insurance settlement might pay for a disability resulting from an auto accident. But you can't count on these sources, obviously. Canada Pension Plan may provide some benefits, but qualification requirements are strict and there is a good chance the amount you are eligible to receive will not be sufficient.

If you have disability coverage included in your group benefits at work or have coverage through an association plan, inform yourself of the details to find what you are insured for, for how long and for how much.

Long term disability policies vary greatly. While some are iron-clad and pay benefits when you need them, others can be so restrictive that you will have difficulty ever claiming. Trying to save some money with a leaner plan may leave your with a plan that is ultimately worthless. Typically, the cheaper plans have very strict definitions of disability, making it difficult to claim benefits over many years. Sadly, this is also true of some group plans.

Many group or associations plans have limited coverage in an effort to keep the cost affordable and to be able to offer them to everyone. For example, many group plans will only compensate you for 24 months if you cannot work in your present occupation but after that if you are able to can perform any job, even for much less pay, your benefits may cease. Also, many group plans cap the total amount of income you are eligible to receive, so high income earners may be surprised at the low maximum monthly benefit. The definitions of disability contained in group LTD policies are typically more restrictive than those in individual disability policies. This means that they can pay less benefit under the same claims scenario than an individual disability income policy.

If there is a chance you may change jobs in the future, it is important to note is that group disability coverage is not portable. When you leave your employer your coverage ceases.

Taxes are another critical factor. If you pay the premiums for the group policy with after-tax dollars, the benefits are not taxable. The same applies to a policy you buy on your own. But, the payments are taxable if the employer pays the premiums. Paying taxes on 60 percent replacement income could significantly reduce what you have left to meet critical expenses.

You may realise at this point that you have an income shortfall if you became disabled. If that is the case, speak to an advisor who is knowledgeable in disability coverage to find out what your options are. One option may be to just purchase individual insurance to cover the gap between what you have now and what you really require to protect you and your family.

One other consideration when determining the amount of coverage to buy: A sufficient amount today probably won't be sufficient years down the road due to inflation, so consider an inflation rider on the benefits and a rider to allow you to increase coverage as your income rises in the future.

If you are unsure if you have the appropriate coverage in place, give me a call, I can help.