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The Globe and Mail

Ignoring the fine print on disability insurance could cost you

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According to Great-West Life's website, one in three people will be disabled for a minimum of 90 days at least once before age 65. For people unlucky enough to fall into this category, the average length of that disability is just a tick under three years.

I've written before that one of your greatest assets is your ability to earn an income. It follows that given the above statistics, it is one of the more expensive assets to insure. If you have a group disability plan, you probably aren't aware of the size of the premiums. But for anyone who has sought a quote, there's a fair bit of sticker shock.

But think of it this way: Would you rather earn $50,000 a year while healthy and $0 a year while disabled, or $48,000 a year while healthy and $30,000 a year while disabled? If your are healthy, you're probably focused on the $2,000 annual cost (in this made-up example). However, if you've been disabled or know someone who has faced financial hardship because of a disability, you know how critical this coverage is.

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There's more to the story, though. Depending on the provisions of your policy, the definition of being disabled, as it pertains to collecting a benefit, can vary. There are three terms worth knowing: Any Occupation, Regular Occupation, and Own Occupation.

If your policy uses the Any Occupation definition of disability, then you are considered disabled if you are unable to perform the duties of any job for which you are reasonably suited. This definition is the hardest to qualify and you would not be considered disabled if you could work in a different job that your training, experience and education would suit you for.

Regular Occupation means that you are considered disabled if you are unable to perform the duties of your regular occupation, which is usually the job you had at the time the disability commenced. Some policies provide for this definition for the first two years of disability and then change to the Any Occupation definition. Depending on the insurance company, it's possible to upgrade your coverage to avoid that if you deem it worth the cost.

Own Occupation is a optional clause that allows you to work in any other job and receive full benefit payments on top of what you might earn from this other job. For example, if you are a surgeon but can no longer operate, you can collect full disability insurance benefits even as you earn six-figures teaching other doctors how to operate.

As you can no doubt surmise, the cost of a policy is related to your likelihood of making a claim and how much that claim will ultimately cost. Perhaps a lot of people will find the upgrade from Any Occupation to Regular Occupation to be great value for the money, but fewer will find the upgrade from Regular Occupation to Own Occupation to be as cost-effective. In fact, the Own Occupation option is not even offered for many types of jobs.

It is very important to understand that the exact definitions and clauses vary between insurance companies. Some policies state that you must be unable to perform all functions of your job, whereas some may state you must be unable to perform only the major duties of your job. It is very important to sit down with a knowledgeable insurance agent to go over all the details of your disability coverage.

The statistics show that one out of three of us are not invincible. I say we can't afford to ignore those odds.

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