Is life and disability insurance worth it? Review 2024
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Discover the methodologyA study shows that 40% of Canadians could face a disability before they turn 65, yet many families are not insured against this risk, threatening their financial security.
Combined life and disability insurance emerges as a crucial solution. This guide simplifies combined insurance, highlighting top providers in Canada, potential costs, and how to qualify, ensuring your family's financial health in case of disability or worse.
Use our free comparator tool to explore the best life and disability insurance plans and compare quotes tailormade for you right here.
Life and Disability Insurance Canada: 4 Key Takeaways
- Life and disability insurance provides optimal protection by eliminating gaps in coverage
- The combined coverage often leads to discounted premiums
- Coverage is usually term-specific but a conversion to a whole life plan may be available
- There is a risk of overinsuring if you are also covered by a group policy
What is life and disability insurance?
Life and disability insurance is an incredibly convenient and extensive product offered by most providers in Canada. By combining both life and disability coverage in one, the product specifically caters to individuals who want cover for any eventuality and who take the protection of their finances seriously.
This is because, as the name suggests, life and disability insurance provides the policyholder with both life insurance and disability insurance. That means that if the insured individual were to become disabled or pass away unexpectedly, they or their benefits would receive a financial payout in either monthly income or a big one-off lump sum.
Life and disability insurance has proven to be a well-liked form of coverage throughout Canada which is largely due to the product’s simplicity and comprehensive protection.
If you think you need disability insurance, you can explore the best options right here. Use our free tool below to get personalized quotes from Canada's top companies in no time.
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What does life and disability insurance cover?
In broad strokes, life and disability insurance covers both death and disability. That means that if you suffer from a disability that stops you from working, you will receive a monthly benefit from the insurance company. Additionally, if you pass away, your beneficiaries will receive a lump sum death benefit.
Lump sum death benefit
The insurance company will pay the death benefit if you pass away from an insured event while the insurance policy is still in effect. Passing away from an insured event includes:
- Natural causes
- Accidents
- Illnesses
The actual value of the death benefit will be equal to the amount of insurance that you requested when signing up for the life and disability policy and will be listed in your document.
If a claim is successful, then the death benefit will either be paid into your estate, or to other beneficiaries as declared by the insured person. There are no limitations on who the beneficiaries could be, but usually the insured would choose those who would be at a financial disadvantage if they were no longer around.
The death benefit can even be divided between multiple individuals should the policyholder wish.
Suicide Exclusion
Most life and disability insurance policies have a suicide exclusion, meaning that no death benefit will be paid if the insured commits suicide within two years of the policy’s issue date.
Some providers may, however, still pay a reduced death benefit which is equal to the amount of premiums already paid by the insured.
Monthly disability benefit
As mentioned earlier, if you suffer a disability that forces you out of work for a prolonged period then the insurance provider will pay you a monthly benefit. What constitutes a disability differs between insurance providers and plans, but it usually includes any illness or injury that stops you from performing your real work for some time. Examples can include:
- Recovery from a serious car accident
- A builder who breaks their arm, requiring an extensive recovery period and physiotherapy
- Heart attack leading to a longer leave of absence
- Cancer patients requiring chemotherapy or radiotherapy
If a disability claim is successful, the insurance provider will start paying the monthly benefit to the insured once the waiting period has been satisfied. This waiting period is often also known as an elimination period and refers to a pre-determined time between the start of the disability and when you are eligible to receive the monthly payout.
24-Month Limitation
Life and disability insurance policies often have a 24-month limit on monthly benefits paid relating to any one disability. Usually, this means that the insurer will only pay you the monthly benefit if you cannot complete your specific full-time occupation and will only continue paying a monthly benefit after 24 months if you cannot undertake any work whatsoever.
It is important to compare the coverage of top providers before buying a policy. You can do that right here using our comparator tool below.
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What are the benefits of life and disability insurance?
The benefits of life and disability insurance are that you are protected financially if you are unable to work and your beneficiaries will receive a financial cushion in the event of your passing. Life and disability insurance, therefore, combines several benefits from two different insurance products which bridges any gaps in coverage and provides the insured with optimal protection.
For example, a pure life insurance policy will only provide your beneficiaries with a death benefit should you pass away. However, if you become disabled you won’t receive any payout and if you cannot work it is likely that you won’t be able to pay for your life insurance premiums.
On the other hand, if you only have a disability insurance policy but pass away, your dependents will likely not receive any payout since death won’t be covered by the insurance.
The following table further breaks down how life and disability insurance benefits differ, to combine into a comprehensive package.
| Consideration | Life Insurance | Disability Insurance |
|---|---|---|
| Benefits payment | Lump sum payment | Lump sum or monthly payments |
| Benefit beneficiary | Paid to the surviving beneficiaries of the deceased policyholder | Paid to the policyholder |
| Benefit coverage period | Benefit is paid once if the insured dies during the insurance term | Benefit is paid for 2, 5, 10 years, or up to retirement Benefit paid if insured becomes disabled during the insurance term |
| Benefit coverage amount | Flexible benefits up to several million CAD | Limited fixed income benefit, usually a percentage of gross monthly income |
What are the advantages and disadvantages of life and disability insurance?
From a financial standpoint, the advantages of life and disability insurance far outweigh any disadvantages. This is because when it comes to risk management and ensuring that your financial future is secure, more coverage is always better than less.
Furthermore, insurance typically comes with blind spots in coverage, meaning your claim may slip through gaps in your policy depending on the nature of the injury, illness, or its outcome. As previously mentioned, combined life and disability insurance typically fills these coverage blind spots.
However, there is also a thing called being overinsured. This is when an individual either insures something over its true value or in a greater amount than they can typically afford. Compare the following pros and cons of life and disability insurance to make sure that the policy suits you before you accidentally overinsure yourself.
Pros
- Combined life and disability insurance covers glaring holes in the standalone version of each policy
- One application can ensure comprehensive coverage
- One policy equals one premium payment and less administration
- Discounts are usually provided for more coverage
- Usually comes with further benefits like bereavement counselling
Cons
- The premium increase with increased coverage can be more than you can afford
- Some combined policies may include additional coverage not requested, like critical illness
- If you already have coverage through employment the policy may be redundant
- Term and other limits may apply
What are the best life and disability insurance plans in Canada?
While it is difficult to name the best life and disability insurance plans in Canada, a couple of great insurance providers do offer this product as part of their combined insurance range. Where providers do not have a specific combined insurance product, they may have various life insurance policies available where disability coverage can be included as an optional add-on for a slight premium increase.
The list below includes some of the best-combined life and disability insurance plans available to Canadians.
- Manulife life and disability insurance: Manulife’s plan named Synergy is a 3-in-1 protection policy that combines critical illness, life, and disability insurance.
- RBC life and disability insurance: RBC offers two combined life and disability plans named LoanProtector and HomeProtector which cover your outstanding RBC credit lines and RBC mortgage payments, respectively. RBC life and disability insurance on mortgage plans are known for reliability and comprehensive coverage.
- Assumptioninsurance: Assumption Life’s FlexTerm allows you to bundle disability coverage to term life insurance.
- Beneva insurance: Beneva’s Simplified Term and Guaranteed Issue life insurance both include extreme disability coverage which provides 50% of the benefit up to $250,000 if the insured becomes permanently disabled and requires ongoing assistance.
You can also explore Cumis life and disability insurance and TD life and disability insurance.
How much does life and disability insurance cost?
The actual costs of life and disability plans are not readily published by providers due to the numerous variables related to the premium calculations. To get an exact premium you would have to speak directly to an insurance agent or the insurance providers themselves. Or simply use our free tool below.
Your premiums will be based on the following combination of factors:
- The amount of coverage chosen
- Policy term length
- Policyholder’s age
- Overall health and smoking status
- Gender
- Occupation
- Chosen waiting period (elimination period)
Finding it hard to determine whether or not life and disability insurance is right for you? Start by comparing some of the best life insurance providers in Canada using our comparison tool below. Get instant quotes and then see if the provider you like also offers disability insurance.
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What is mortgage life and disability insurance?
Mortgage life and disability insurance plans differ from normal life and disability insurance by insuring your financial obligations towards your outstanding mortgage. This means that should you pass away or be unable to work due to a disability, the insurance provider will pay your lump sum death benefit or monthly benefit directly to your mortgage lender to cover your debt, as opposed to providing you with the benefit payments.
Life and disability insurance on mortgage is therefore more akin to a personal line of credit insurance (credit life and disability insurance) than a standard insurance product. RBC's life and disability insurance product is one such example.
To qualify for life and disability insurance for mortgage you usually have to be between 18-64, be a Canadian citizen or permanent resident, in addition to being a borrower or co-borrower of an eligible personal line of credit.
