Insurance & Risk Management
Group Insurance – how well are you really protected?
“1 IN 3 Canadians will experience a period of disability
lasting longer than 90 days during their working lives.”
When it comes to disability or life insurance, many employees think they are well covered by their group benefits at work.
Yet is it as sufficient as it is hoped for?
First its important to know what you have….
Does your group employee benefits plan cover disability due to illness, accidental or both?
Is the life insurance portion for any cause of death, or is it accidental only?
Reading through the carriers’ booklet will shed light on the coverage. If possible, ask you Human Resources Manager to explain the coverage in detail. It is worth your time to understand what you really have and what you do not.
Some Group Disability Misconceptions
Disability coverage is probably the most important benefits to have, yet its also the most difficult to understand. Knowing the employee benefits coverage is key as it covers the most important asset you have – your ability to earn an income.
For example, a 35 year old employee earning $50,000 a year to age 65 can expect to earn $2.194 million (assumes wage growth of 2.5% per annum). In general, this surpasses the combined value of most Canadians’s cars, RRSP and houses. The average duration of a disability is now 3.1 years.
First to note is that some group plans do not include disability insurance, and if you do have it, the coverage on average is 67% of your gross income.
Group disability coverage has some advantages, …
No requirement to submit any medical evidence of health (up to a certain maximum coverage amount)
Affordable premiums as shared with other employees on the group plan
Challenges with group disability plans …
Generally speaking, these benefits kick in only in the event of a total disability
o There are no benefits paid for a partial loss of pre-disability income
The coverage seldom includes inflationary indexing while on claim
Yet, the most significant drawback is the limitation of the benefit coverage to two years under one’s ‘own occupation’ criterion; otherwise, benefits cease.
o For example, if you were an electrician, and lost the use of your hand, group disability would provide coverage for only two years.
Enhancing Your Protection
Is there a solution?
Yes. Individual disability insurance coverage can supplement and wrap around the group coverage to enhance or replace benefits not covered in a group plan. This individual coverage may:
extend the “own occupation” coverage definition beyond two years to age 65;
add partial benefit coverage to cover partial loss of income due to accident or illness;
add inflation indexing benefits to keep the benefit from falling below the cost of living.
A big advantage is that, while group premiums can increase, individual coverage has level cost premiums. Also, group coverage is not portable should you change occupation or employment, whereas individual coverage is portable once in force. And some individual plans allow you to receive a portion of your premiums back if you don’t make a claim.
It’s important to point out that individual coverage will cost more than group coverage.
However, if it ends up costing only a few dollars a day to protect your income, it’s a small price to pay. In addition, while the premiums paid for individual disability coverage are usually not tax deductible, the benefit payments while on claim are tax free.
Group contracts may be different. For example, under some group policies, the employer may pay a portion of the costs, in which case the disability payments become a taxable benefit. In addition, it is important to note that most group plans only cover base salaries and do not include commissions, profit sharing or bonuses, whereas an individual plan can include these.
Group insurance contracts vary from organization to organization and so do the coverage benefits, so for the safety of you and your family, it is critical that you seek out a qualified insurance professional who is well versed in group and individual contracts.
The Gamble of Not Knowing
When it comes to insurance, ignorance is not bliss, as evidenced by our client mentioned on the previous page — the one who thought he had disability coverage from his group plan when in fact he had none at all.
Let us know when if we can shed light on your coverage and your options… our team includes Employee benefit experts such a Ly Siu.