Accidents can happen....
Think your off-the-rack group disability plan has got you covered ? You could be in for a nasty surprise
Republished from Chatelaine
By Gail Vaz-Oxlade

Imagine the horror of being diagnosed with a progressively debilitating disease. Imagine the relief of knowing that while you have to stop working, you have a group disability plan. Imagine your disbelief when your claim is declined because you just aren't disabled enough in the eyes of your insurance company.

It happened to my best girlfriend, Cookie, and it could happen to you. If you want to avoid a nasty surprise, tear out this page. Take it to your benefits administrator at work and make sure you understand exactly where you stand.

Get the answers now
What is the policy's definition of "disabled" and how long will benefits be paid? If you can't do the job you were hired to do, will you be paid regardless of what other work you may be able to find? Will partial benefits be paid if you can only work for a few hours a day?

Kathy Farrell, former director of women's financial planning at Imperial Life, says a weak definition of disabled can be one of the biggest holes in a plan.

"Carol, a client of mine, had a disability plan that covered her for her own occupation for two years, after which it reverted to 'any occupation'. That's typical of a group plan. The only way she could continue to collect after two years is if she were unable to do any work at all," says Farrell.

How much am I covered for and how will it be taxed? Most group policies cover employees for a certain percentage of their salaries-usually 60 to 75 percent. Some also have a cumulative maximum. But many people have no idea how much they're covered for - that's the first half of this question. Next you need to find out if your disability income will be taxed. If your group policy premium is paid for by your employer, the benefits generated when you make a claim will be taxable. If you pay the premiums, your benefits are tax-free. If your coverage will be taxed, will it be sufficient once tax is taken?

Does my policy have a "residual disability" feature that covers a slow or partial recovery or a slow deterioration from a progressive disease? This feature can be very important. Without it years may pass before your benefit claim can begin because you must meet the insurance company's definition of' "totally disabled."

That was the humbug in Cookie's case. She was diagnosed with multiple sclerosis. Though Cookie couldn't work, the insurance company refused to accept that she was 60 percent disabled and so wouldn't pay up - anyway, not until she got a lawyer who was prepared to argue her case. Since most group plans have limited benefits for residual disabilities, the seams of your safety net may not be as strong as you think.

What are the exclusions on my policy? An exclusion is something for which you aren't covered. Typical exclusions include travel outside Canada, preexisting conditions, mental or nervous disorders and alcoholism.

Get covered
Smart people who want to make sure that they and their families are well protected don't rely on off-the-shelf group insurance. They look to an individual policy to supplement it. Farrell's client Carol bought low cost private coverage that kicked in two years later, after her group coverage expired. It's called group off-set insurance and it's relatively cheap because the wait period-the time before benefits are paid-is so long.

"The other important issue in favour of an individual policy is that you may not always have your group plan," says Farrell. A change in jobs, the decision to stay home to raise a family or self-employment could all leave you without coverage.

But buying disability coverage is complicated. There are rigorous health criteria and you must show proof of income relative to the coverage for which you're applying. That often excludes new entrepreneurs from coverage until they have at least two years of earnings history. And as you get older, coverage gets more expensive and more difficult to obtain.

Get the right fit
You must get the help of a qualified insurance advisor when you go shopping for disability insurance. With so many sizes and styles out there, it's very easy to buy one that looks good on the hanger but just doesn't fit. The good fit comes with a fine insurance tailor who can customize a disability plan just for you.

Three features to stitch into your individual plan
A policy should be non-cancelable and guaranteed renewable so that the contract cannot be changed or canceled just when you may not qualify for another plan.

An inflation rider or cost-of-living rider is a good way to increase your monthly benefits. While expensive, it is critical when you look at the impact of inflation on your purchasing power.

A future insurability rider allows you to increase your benefits without additional health questions. If you anticipate significant increases in your income, be sure you have this feature.