We can take action to minimize our risk of disability, like passing on that backcountry skiing trip, or taking appropriate care of our mental and physical health. We can’t however, fully eliminate the risk. Accidents happen. We never plan to get rear-ended, or to visit our doctor and discover a medical condition that will require some time off. But these things happen.
One of the best lessons I’ve learned as an advisor is that you can’t control results, only the effort you put in. It seems simple, but I use it all the time. The same lesson applies for insurance planning. I can’t control if I will get cancer, get in a car accident, or encounter other catastrophic events. What I can control, is my risk mitigation strategy (a fancy term for insurance).
Today, my focus is on disability insurance, and the difference between your group plan, and a professional contract. The biggest difference to me? Control. I will get into that more later, but I want that to be the overall theme.
Whether you are an executive, medical professional, engineer, or any other professional, you likely have access to some form of group disability insurance. You may be able to go on your company plan, or your professional association plan. These offer you a layer of protection. What sort of protection you ask? Well I have no idea. Group plans change all the time. One year you can be insured through Manulife, the next your group plan has shifted to Great West Life. New terms, new rates, etc. How many professionals have time to sit down annually and review their group plan to figure out what’s changed? Clients that I work with would prefer to have an advisor and a contract that stays the same, indefinitely.
So let me explain how some of these differences work. When you go on a group plan, you have access to a small, base level of disability insurance. There is a maximum you can qualify for without going through medical underwriting. You do not get to determine any of the terms of the contract. You don’t get to add in riders (special benefits) that may be beneficial to your family or your personal circumstances. You don’t have a say in the price. You just sign up, and hope that the coverage will be adequate, should a disability occur. What if you move provinces, changing to a new association and group plan? Well you have to qualify for the new plan, and who knows what that looks like. Is all of this causing a bit of worry for you yet? Good, it should be. I’ve seen rate hikes, people kicked off their claim, losing coverage, etc. You get the point.
What does a personal disability contract do differently? Well I will go back to the magic word, control. Having a personal, professional contract that is set up through a qualified advisor, will give you control over what you want in your contract. When I work with a client, we determine what level of coverage they need and what riders they want to include in the contract. We look at their family and financial situation. Here are some of the questions and discussion I use:
- “Mr. or Mrs. client, how long could you and your family make it financially without earning your paycheque?”
- “Are you the primary income earner? If so, here are some riders you may want to consider”
- And finally, “This is the rate we can get you for that amount of coverage. That rate is going to stay the same until you are 65.”
One big piece I’ve hardly touched on, price. Personal contracts are more expensive up front when you are young, because you lock in that rate long-term. But if you look at the cost over time, your group rates will increase every 5 years and, in the end, cost you substantially more than your personal contract. Insurance companies have margins to maintain. If they are paying out more for claims than they are collecting in premiums, rates go up. Having a personal contract protects you from that increase. Here’s a chart that explains what I mean. You can see the point where the group contract surpasses the personal in price, and it only goes up from there:
I like to take away the uncertainty. I want you to know what your coverage will be, which riders we are applying for and why, and make sure you fully understand your contract. Working with an advisor for a personal disability contract will ensure you have what you need, when you need it. Control.
If you want to know more, I’m here. Thanks for listening.