DISABILITY INSURANCE PRIMER

First, a brief outline of the employer-provided coverage negotiated on your behalf by PAR-BC. The premiums are employer-paid.

As a member of PAR-BC, two of the health and welfare benefits that automatically cover you are sick leave, and long-term disability (LTD), for as long as you are a Resident employed by the hospitals.

SICK LEAVE

Coverage is effective the first day of employment. Article 11.01 of the collective agreement provides that a Resident will not “suffer loss of pay or benefits due to sickness or accident during the term of his / her appointment, or until such time as the Resident becomes eligible for long-term disability payment under the LTD plan.” Practically speaking, this means that the majority of Residents who go on sick leave will receive 100% of their salary and benefits until they are eligible for LTD.

LONG-TERM DISABILITY (LTD)

To qualify for LTD benefits for the first 29 months of disability (including 5 month qualification period, during which you will be on sick leave): You must be unable, because of an accident or sickness, to perform the duties of your own occupation. The “own occupation” period.

To continue to qualify for LTD benefits after 29 months of disability: You must be unable to perform the duties of any gainful occupation for which you have the education, training or experience, and which pays at least 70% of the current rate of pay for your job as at the date you became disabled. This is called the “any occupation” period.

THE ADVISOR, OR BROKER

Insurance advisors or brokers will offer “free” advice about private disability insurance. Bear in mind that the advice may be free but the advisor is paid if you purchase a policy from him/her. This means that he or she has a vested interest in selling you a policy, which may be in conflict with your requirements.

Ask yourself, is he or she impartial, independent, and knowledgeable? What is the scope upon which they base their advice, and recommendations? Does he or she represent one insurer, or more? Why or why not? Has he or she conducted a thorough assessment of your needs, or is the recommendation for a standard, “cookie-cutter” policy or policies? Are you provided with options? Has the policy been fully explained including the pros and cons? Low premiums should not be your only consideration. The premium is only one of many factors that you should take into account when purchasing LTD insurance.

THE POLICY

There are two types of policies:

1. Cancelable. The insurer retains the contractual right to modify or terminate your coverage.

2. Non-cancelable. The insurer can neither modify your policy nor increase your premiums. You can, however, cancel at any time.

The difference between the two types of policies is who has dominant control over the policy. To determine which policy is best for you, your first decision should be the degree of long-term control you want.

THE INSURER

A fundamental consideration is how your vocational, financial, medical, and occupational risk is assessed. Without anticipation and special attention to this process, your policy may be approved, but with potentially needless exclusions, modifications, and /or premium ratings.

Another fundamental consideration is what process is involved in claiming your disability pay. Although disability insurers are in the business of paying claims they also have a fiduciary responsibility to their policyholders, and stockholders. A disability insurer’s mandate is to pay benefits only to those legitimately qualified to receive them. If your broker tells you that ‘X‘ insurer is better than ‘Y’ because ‘X’ has automatic claims payment, the broker is either promoting their policy sale or doesn’t understand the claims process; there is no such thing as automatic claims payment. Each claim is assessed for eligibility.

SCOPE OF COVERAGE

Scope of coverage ranges from those policies that pay a lump sum only if you develop one of a number of pre-determined illnesses to those that are triggered by a reduced capacity to work. The majority of the policies fall somewhere in between and pay a benefit only once you are completely unable to work – totally disabled. So, when selecting your policy you need to decide if you want coverage that will pay only if you become severely ill, incapacitated, or gradually sicker and only able to remain working on a reduced basis.

VARIABLES

While much of your decision-making process will likely focus on premiums, each decision you make when you are healthy will have direct repercussions at the time of any potential claims when you are unhealthy and unable to work. Trade-offs will always have to be made; the key is melding the cost effective combinations of configuration variables and those that are not.

Pre-determined variables that affect premiums are:

• Gender

• Age

• Tobacco status

• Occupation

• Income

Waiting Period

In general, the longer the waiting period the lower the premiums. The other consideration is whether the days must be continuous, or non-consecutive and accumulated, as well as the degree of disablement that must occur during the waiting period. Some plans will only allow days of total disability to be counted whereas others will allow any combination of days of total disability and / or reduced ability to practice.

OPTIONAL RIDERS

The purpose of optional riders is to expand the scope of your protection against sickness or accident in a very specific area. Don’t assume because your broker recommends one rider and not another that he or she knows what is best, that you must agree to it, or that there aren’t other riders that may be better suited for your needs. Examine each item carefully in terms of how it best meets your unique needs.

The following is an alphabetic listing of some optional riders: 

• Accidental Death & Dismemberment (AD&D).  If you are dismembered due to an accident you will receive a pre-determined lump sum, regardless whether or not you are able to return to work. If you die because of an accident, a pre-determined lump sum is paid to your beneficiary. The current PAR-BC plan does cover AD&D up to $50,000.

• Cost of Living. Your monthly benefits are increased to keep up with inflation based on a pre-determined formula.

• Critical Illness. Regardless of your capacity to work, if you develop one of a number of pre-determined illnesses you will receive a pre-determined lump sum payment.

• First Day of Accident. If you are totally disabled by an accident your benefits will commence on the first day of your accident.

• First Day of Hospitalization. If you are hospitalized overnight during your waiting period, you will receive a proportionate per diem of your monthly disability insurance benefit for each night you remain in the hospital.

• Guaranteed Insurability. Subject to your income, this option allows you to purchase additional disability insurance in the future, regardless of your health status.

• Hepatitis/HIV. Regardless of your ability to work and with some options subject to regulatory restrictions, if you develop certain types of hepatitis or HIV you will be deemed disabled.

• Lifetime Benefits. Selecting this option pays you benefits for the balance of your life.

• Own Occupation. If you are unable to work in the job you were working at when you became disabled you will receive your full monthly disability insurance benefit even if you are working at another job and regardless of whatever income you may be earning.

• Residual Disability. Based on the proportion of your loss of income, you will receive a similar proportion of your monthly disability insurance benefits.

• Retirement Fund. Each month you are disabled, a pre-determined sum will be deposited on your behalf into a non-registered and taxable savings account.

• Return of Premium. If you do not become disabled or experience a minimal claim during a pre-determined period, the insurer will refund a percentage of your premiums.

• Zero Day Elimination Period. After an initial consecutive period of total disability you will receive a pre-determined lump sum.

APPLYING FOR DISABILITY INSURANCE

Your application has considerable impact on any potential claims as it forms the basis upon which the insurer assesses your risk and issues your disability insurance contract or certificate. Failure to disclose material facts can void your disability insurance when you go to claim.

When you self-prescribe your insurance by completing a mail-in application you run the additional risk of not knowing what facts are material and which are not. Your application and the supporting documentation can be strategic tools in improving the underwriter’s assessment or it can form the basis around which to deny your otherwise valid claim.

PREMIUMS

A rule of thumb is that premiums tend to reflect the length and degree of the policyholder’s control. The more control you have over your policy the higher your premiums.

Cancelable policy premiums tend to increase at pre-determined age-bands. Non-cancelable policy premiums remain level from the date off issue through to your 65th birthday. However, some Canadian insurers will issue non-cancelable policies that start with lower premiums but, increase on a graded basis as per a guaranteed premium schedule.

Most insurers allow you to pay monthly, or receive a discount on the premium by paying annually. However, when an individual becomes disabled his or her premiums are usually waived. Therefore, if you choose to pay annually and become disabled, your premium may not be waived or refunded until the anniversary of your premium payment.

MANAGING YOUR FUTURE

Your disability insurance portfolio needs to be actively managed. If you treat your disability insurance program as static protection, then you may passively allow your coverage to fall out of line with your other financial accumulations and goals, or to under-perform in relation to ever evolving risk protection options.

FREE EXAMINATION PERIOD

After receiving your policy you have, under the law, a free examination period during which you can change your mind, return the policy, and receive a full refund of your premiums. It is in your best interest to determine the length of the examination period.