Do I need disability insurance if I’m covered through work?

Much like group life insurance, many working professionals assume they don’t need to look into their individual or group disability insurance options because they are covered through their work or another professional association. You may have been sold on your full benefits package at that new startup, or you’re a physician and are covered through your province’s medical association.

Regardless of how you’re covered, it feels good to have that protection should something happen that affects your ability to earn a wage. However, that feeling can be deceiving as group coverage falls short for many professionals, offering a false sense of security until they need that coverage most. As they say, you only miss the sun when it starts to snow.

Just because you’re covered through work doesn’t mean you shouldn’t look at augmenting or replacing your coverage with individual disability insurance. Here’s why.

How does group disability insurance work?

Put simply, group disability insurance covers a group of people. It is owned by the plan sponsor, usually the employer, or in some cases you purchase coverage individually through the group plan or the professional association of which you are a member.

If something happens where you are unable to perform the duties of your job due to a disability caused by an illness or an accident, some portion of your income is replaced, while you recover. There are several pros and cons to being covered by group disability insurance.

Advantages of group disability insurance

• It’s easy to sign up, with limited paperwork and no individual underwriting.
• In most cases, your employer pays for most (if not all) of the premiums
• If you do pay the premiums yourself, they are usually less expensive, since the insurance company pools the risk.
• Even those with pre-existing medical conditions are usually able to enroll in group coverage.

Disadvantages of group disability insurance

• The coverage amount will have limitations you can’t control- you don’t choose the amount or length of your benefit, and the plan details can change without your consent – including cancellation of the plan
• Group plan may not cover all your income like commissions and bonuses.
• Depending on the plan, it can be inadequate for your needs, especially if a long-term disability lasts for an extended amount of time.
• There is a lapse in coverage if you change jobs and you have to re-apply at your new job.
• And, if your new job has no built-in group benefits option, you have to then obtain your own disability insurance later in life when premiums would be much higher.
• If your employer paid all or some of the premiums, your benefits will be taxed.

Furthermore, there are even broader disadvantages to group disability insurance. Depending on how your role and seniority is classified at your job, you may only be eligible for regular occupation disability insurance – a less comprehensive insurance option which limits your ability to earn back a similar amount of money when you were without the disability. Group disability insurance may also end earlier for more recently hired or lower level employees, as opposed to the longer benefit period for executives and more senior level employees at the same companies.

What is individual disability insurance?

Individual, or private, insurance works fundamentally the same as group insurance in that it offers income protection should you need it.

Where it differs is that you pay the premiums yourself, and determine all facets of the plan, including what occupation classes it covers, the benefit amount, the waiting period, and much more. With this amount of control, you can tailor a disability insurance policy to your needs and specific occupation. And it stays with you forever, whether or not you move jobs.

Payments from individual disability insurance are tax-free – since you already paid your premiums, after-tax.

What should you do?

First things first, go through your current group disability insurance plan if you have one – and we don’t mean skim. You should go through the policy with a fine-toothed comb and bring up any questions or concerns you have with your company’s human resources department. Figure out exactly what your coverage is so you can make more a more informed decision around how much more you need – if any. Want to avoid that awkward chat with HR? Click on the speech balloon in the lower right corner and you’ll find someone happy to chat – in the privacy of your own home.

If you decide you want to supplement your existing disability insurance coverage with an individual policy, you would be wise to crunch the numbers – especially if you are paying all or a portion of the premiums through your group plan. Logically, you would think to take what you can get through group insurance since it is either cheaper or available to you for free. However, sometimes the cost of keeping your existing coverage and adding supplementary private coverage is greater than just crafting a comprehensive private plan for yourself and paying the full cost.

How can this be, you ask? Group insurance will have limitations around amount, length or type of benefits and you may be paying for coverage that will not protect your individual needs or circumstances. Based on your own preferences, you could possibly qualify for much better coverage if you applied individually for disability insurance.

Can I buy disability insurance on my own?

Of course! If you want more control over your benefit amount and occupation choices, head to our Disability Insurance tool to see your options.

For an in-depth analysis of how disability insurance works in Canada, read our Honest Guide to Disability Insurance or learn how much disability insurance costs here. We get it – this is a lot of food for thought. But, securing your income during a personal health issue can offer peace-of-mind both today and in the future on your possible road to recovery.

Still have questions? Reach out to the PolicyAdvisor team – we’re happy to chat!