Group Disability vs Individual Disability Insurance Policies in Canada

Canadians are usually insured through their employer with group disability insurance policies. However, such policies may not be enough. Many studies suggest that there is nearly a 1 in 3 chance of becoming disabled for more than 90 days before age 65. An independent policy is recommended in order to ensure comprehensive and total coverage which might not be provided with group policies. It’s worth exploring all coverage options, including individual policies, to ensure you have adequate protection.

In this article: 

• Why group and association-sponsored disability policies may not suffice
• Why is having an independent policy important for long-term disabilities?
• Why should you consider having an independent policy?
  • What is a Cancelable policy vs Non-Cancelable Policy?
• Group and Individual Disability Insurance FAQs

Why group and association-sponsored disability policies may not suffice

Millions of Canadians are insured through their employer with group disability insurance policies. Thousands more opt to take coverage through their association plans, such as the Ontario Medical Insurance (OMA insurance) or Lawyers Financial (previously known as The Canadian Bar Insurance Association or CBIA).

Group disability insurance and many association sponsored disability policies should be similarly viewed to taking travel insurance with your credit card; while something is certainly better than nothing, in order to ensure comprehensive and total coverage an independent policy is recommended. 

Various studies have shown that there is nearly a 1 in 3 chance of becoming disabled for more than 90 days before age 65. Some of these disabilities can last months or even years. This makes ensuring you have the correct policy vitally more important.

Why is having an independent policy important for long-term disabilities (LTD)?

If you become disabled and unable to work, disability insurance is designed to replace a portion of your income. A disability can be caused by a variety of factors, such as an injury, a significant sickness, or a mental health problem. Disabilities can last for a short or long time, but long-term disability (LTD) insurance is there to help replace your lost income if you become disabled. Long-term disability insurance is an important consideration for Canadians, given the high likelihood of disability before age 65, and it’s worth exploring all coverage options, including individual policies, to ensure you have adequate protection.

One in every five working Canadians has been involved in a serious accident or health crisis. Long-term disability insurance (LTD) is just as vital as life insurance and house insurance during your working years. Nobody can predict the future, and even if you’re healthy now, illness or injury can strike at any time. That’s why it’s important to have sufficient disability insurance – it can provide financial security if you’re unable to work due to illness or injury.

Why should you consider having an independent policy?

The following are some of the reasons why an independent policy might be beneficial:

1. Coverage cannot be Canceled (Cancelable policy vs Non-Cancelable Policy)

Just a few short years ago, lawyers with group disability insurance with the CBIA were surprised to learn they no longer had coverage with their previous insurer (in this case Sun Life Financial). Thankfully for them, Manulife Financial opted to provide a continuation of coverage.

Cancelable policy vs Non-Cancelable Policy
This however highlights a major concern with group or association coverage. If the insurer deems the risk of a group too high they can opt to cancel coverage or reduce benefits. An individual policy which is non-cancellable ensures that coverage will always be there, provided premiums are paid. The insurance company cannot cancel coverage or reduce the benefit, no matter what the reason.

2. Guaranteed premiums

Whether it is a group insurance plan offered through an employer or an association plan, group disability coverage premiums generally renew every few years. While the insurer may continue the coverage, they may opt to significantly increase the renewal premium. Opting for cancellation or reduced benefits by insurers due to high-risk groups can lead to significantly higher costs and create uncertainty about future expenses. However, with an independent policy, you can ensure a secure premium without the risk of ever-increasing rates for the same level of coverage.

3. More comprehensive disability definitions

Generally a personally owned disability insurance policy will have far more generous definitions as it relates to a disability. What a group policy defines as a “disability” can be far different than an individually owned, comprehensive disability insurance policy. This can be vitally important if one is sick or injured and unable to work. Often with a group plan you are required to be 100% disabled and unable to work your specific job, whereas an individual plan will often pay a percentage of a disability.

4. Ability to include “Own Occupation” rider clause

Many group plans will stop paying after a certain amount of time has lapsed even if the employee is unable to work in their previous occupation. Individual plans with the “own occupation” rider/benefit (aka “own-occ”) ensures that the policy will continue to pay if you are disabled and unable to work in your previous occupation, but able to work in another. Note, most association plans do include this benefit as well. 

5. Portability

A recent study showed a worker is projected to have 10 different jobs before the age of 40 with the expectation that this number will grow further. With so many job changes, coverage can be drastically different from one employer to the other, with some employers not offering any coverage at all. Similarly, an association plan may require an active member to continue coverage. An independently owned policy is 100% portable independent of current job.

6. Cost

Given group and association disability policies are based on the collective risk of the group, this risk and the costs associated can significantly increase in time. Furthermore, due to the tiered cost structure of many group and association policies, premiums which can be lower in earlier years can be much higher in later years. This is similar to group life insurance which has 5 year age bands, with costs long term much higher than an independent policy. For example, the OMA insurance mentioned above offers insurance policies with 5 year cost guaranteed bands and return on premium. Initially, a doctor may consider it the most cost-effective option. However, upon closer examination, they often discover that an individually owned policy not only provides superior benefits but also proves to be significantly more affordable in the long run.

7. Ability to add additional riders/benefits

Beyond the own occupation rider, individual plans allow one to add several optional benefits to enhance the coverage. While some association plans will allow some of these riders to also be included, an individual policy is typically far more extensive in the options available. This includes a return of premium rider which will refund 50% of premium paid if no claim is made after a specific amount of time. Some other benefits include future purchase option (or Guaranteed Insurability Option aka GIA) which allows one to purchase additional disability insurance in future, Cost of Living Adjustments (COLA) which provides an annual increase to the disability benefit (typically based on inflation) and Life Insurance and Critical Illness insurance riders which allows adding additional insurance coverage to a disability policy.

8. Taxation of benefits

In the case of group insurance, if your employer pays the premium on your group disability policy, your benefit is taxable when you receive them. Alternatively if your group policy is paid pre-tax dollars the benefit is similarly taxable. An individual policy paid with after tax dollars provides a benefit that is also tax free. Note most association plans are similarly paid with after tax dollars and would also provide a tax free benefit.

These are some of the points of consideration when looking at complimenting a group or association disability insurance policy with independently owned coverage or replacing it outright. There are many factors to consider and individual needs vary.

It is best to contact a disability illness insurance broker to learn about your options and design a plan that best suits your needs.

Frequently Asked Questions (FAQs) about Disability Insurance in Canada 

Plan ahead and get the financial protection you need. With individual disability insurance plans, you can keep your mind at ease.

Group disability plans can be canceled, premiums can be raised, and there is little flexibility. They rarely pay for the most common sort of claim: partial disability. These restrictions do not apply to individual disability insurance plans. With individual disability insurance plans, you get what you pay for when it comes to disability insurance. If you’re in an accident or get sick and can’t work, the last thing on your mind is how much your disability income insurance premium will be. 

At Protect Your Wealth, we work with and compare policies and quotes from the best life insurance companies in Canada to create the best solution for you and your needs. We’ve been providing expert life insurance solutions since 2007, including no medical life insurance, term life insurance, and permanent life insurance, to build the best package to give you the protection you need. 

Contact Protect Your Wealth or call us at 1-877-654-6119 to talk to an advisor today! We’re proudly based out of Hamilton, and service clients anywhere in Ontario, Alberta, and British Columbia, including areas such as Oakville, Grande Prairie, and Victoria.