Hopefully, you will never find yourself in the position of suffering with a long term disability or illness but it is important to protect yourself and your family against such an event.
I am often asked by people “Do I really need Long Term Disability Insurance ?” Although, I am a personal injury/disability litigator and not a financial planner, my experience fighting for people’s disability benefits tells me that the answer depends on a number of factors.
Determining whether you need Long Term Disability (“LTD”) insurance depends upon your financial circumstances. You might want to assess your situation, by asking, “If I become unable to work, do I have any, or enough financial resources to never have to work again?”
If you answered “yes,” then it’s likely you don’t need a LTD coverage plan. (Note: very few people fall into this category.) If you answered “no,” then you really need to put measures in place to fill the financial gap, in the event you become disabled.
Employer Provided Long Term Disability Insurance
In some cases, your employer provides a benefits package, which includes LTD benefits. It’s a negotiated contract between your employer and an insurance carrier for benefits under which you qualify as an “insured” person by virtue of being employed.
Review your plan to see what your disability payments will be if you become disabled. You need to know what the payments and/or other benefits will be, should you become disabled in a long term situation.
If you discover that your LTD policy payments would not be enough for you to live on, then you will have a cash flow shortfall that needs addressing. You may need to obtain either a supplemental disability benefits plan on your own that will cover any shortfall, or you may need to think about your lifestyle and what you will need to do in case you have to live on a smaller income.
Consequences of No Coverage
Unfortunately, most people don’t see the need for a LTD plan, until becoming disabled and suffering the consequences of not having appropriate coverage in place. The truly disheartening aspect of an inadequate coverage, or no LTD insurance, is the loss of assets such as the home and/or having to depend upon the care of someone else for survival.
The loss of one’s home, or having to depend upon someone else financially, can be very demoralizing experiences, particularly when the person has worked so hard to own his/her home and to become self-sufficient. No one should lose his/her home as a result of disability or illness if he/she has put the right coverage in place.
If one has dependents that he/she has been supporting—children or very senior parents—the situation is even worse. What happens to these family members when the supporting person can no longer provide for their needs?
As would be expected, extreme stress is likely to result from these hard-hitting realities, which only exacerbates a person’s problems particularly if there is a psychological component to the disability.
Knowledge is Power: Don’t be Left without Long Term Policy Coverage
The good news in all of this is that knowledge is power. Sit down, figure out how much income you would need in a month to survive. If you have a policy, review your LTD plan and see if there is enough coverage.
If your workplace does not offer LTD benefits, or if the coverage is insufficient, there are many ways to obtain a private or a supplemental policy. You will have to pay premiums for the coverage, but the appropriate LTD coverage can save you a lifetime of upset and heartache.
If you don’t have any long term disability coverage, you will be left with Canada Pension Plan (“CPP”) Disability Benefits, provided you have paid into the system for the appropriate amount of time, and/or you will be left with applying for ODSP. Both programs although helpful, provide modest monthly payments—if you qualify.
Some people will argue that they cannot afford to pay for a long term disability plan. However, it is not a question of whether you can afford it – it’s a question of whether you can afford not to have the coverage. Can you afford to lose your house? Can you live off your children or parents for the rest of your life, if you become disabled? Can you live off the few hundred dollars a month that you may be entitled to under ODSP or CPP legislation, if you qualify under those systems?
If your answer is “no” to these questions, then you really must consider obtaining sufficient disability coverage.