Understanding the most common disability insurance claims in Canada so it can help you decide if it's worth buying disability insurance for income replacement
Understanding the Most Common Disability Insurance Claims in Canada
Accident & Injury Claims Are Not # 1
Disability insurance serves as a crucial safety net for Canadians, providing financial support when individuals are unable to work due to illness or injury. Understanding the prevalent causes of disability claims can help in both prevention and preparedness. This article delves into the most common disability insurance claims in Canada.
Most Common Types of Disabilities Covered by Disability Insurance in Canada
First it's important to start with the most common types of disabilities covered by disability insurance in Canada. Whether provided through employer-sponsored plans, private insurers, or government programs such as the Canada Pension Plan Disability (CPP-D), coverage is essential for financial security and maintaining quality of life. Understanding the types of disabilities covered can help individuals make informed decisions about their insurance needs and future planning.
1. Physical Disabilities
Physical disabilities can result from accidents, illnesses, or congenital conditions that impair mobility or bodily function. Common physical disabilities covered by disability insurance include:
- Musculoskeletal Disorders: Conditions such as arthritis, chronic back pain, herniated discs, and osteoporosis can significantly impair movement and ability to work.
- Neurological Disorders: Diseases like multiple sclerosis, Parkinson’s disease, epilepsy, and cerebral palsy often lead to progressive deterioration in motor function.
- Amputations and Paralysis: Limb loss due to trauma or medical conditions (e.g., diabetes-related complications) as well as paralysis caused by spinal cord injuries or strokes are commonly covered.
- Chronic Pain Disorders: Fibromyalgia and complex regional pain syndrome (CRPS) can severely impact daily life and work capacity.
2. Mental Health Disorders
Mental health conditions are increasingly recognized as legitimate causes of disability, affecting one’s ability to perform job duties effectively. Some commonly covered mental health disorders include:
- Depression: Major depressive disorder can lead to prolonged absenteeism and difficulty maintaining employment.
- Anxiety Disorders: Generalized anxiety disorder, panic disorder, and post-traumatic stress disorder (PTSD) can cause significant distress and impair work performance.
- Bipolar Disorder: Extreme mood swings, including episodes of mania and depression, may make it difficult to sustain employment.
- Schizophrenia and Psychotic Disorders: Severe psychiatric conditions affecting perception, thinking, and behavior can necessitate long-term disability support.
It's important to note that coverage can vary depending on the specific insurance policy and provider. Most disability insurance policies recognize that mental health conditions can be as debilitating as physical disabilities, affecting an individual's ability to work and perform daily activities
.
Some policies may also cover other conditions such as:
- Attention-Deficit/Hyperactivity Disorder (ADHD)
- Schizoaffective Disorder
- Mental retardation
While these conditions are commonly covered, the approval of a disability claim often depends on the severity of the condition and its impact on the individual's ability to work. Insurance providers typically require substantial evidence supporting the claim, including documentation of the nature, severity, and frequency of symptoms, and how these symptoms impede the person from performing their occupational duties
3. Cardiovascular and Respiratory Diseases
Chronic diseases affecting the heart and lungs can severely limit an individual's ability to work. Common conditions covered include:
- Heart Disease: Coronary artery disease, heart attacks, and heart failure can result in significant physical limitations.
- Chronic Obstructive Pulmonary Disease (COPD): Conditions like emphysema and chronic bronchitis reduce lung function, making physical exertion challenging.
- Asthma and Pulmonary Fibrosis: Severe respiratory conditions can impair breathing, leading to work restrictions.
4. Cancer and Other Serious Illnesses
Cancer and other life-threatening illnesses often require extensive treatment and recovery time. Disability insurance typically covers:
- Various Types of Cancer: Treatments like chemotherapy, radiation, and surgery can result in prolonged absences from work.
- Autoimmune Diseases: Conditions like lupus, Crohn’s disease, and rheumatoid arthritis can cause debilitating symptoms that affect daily activities.
- Kidney and Liver Diseases: Chronic kidney disease (CKD) and liver failure often require dialysis or transplants, limiting work ability.
5. Sensory Impairments
Disability insurance may also cover sensory impairments that affect communication and daily functioning, such as:
- Blindness and Severe Visual Impairment: Loss of vision can impact one’s ability to perform many occupational tasks.
- Hearing Loss and Deafness: Individuals who experience severe hearing impairment may struggle in jobs that require verbal communication.
Most Common Disability Insurance Claims Ranked
1. Mental Health Conditions
Mental health issues have emerged as the leading cause of disability claims in Canada. Conditions such as depression, anxiety, stress-related disorders, and other psychiatric illnesses significantly impact individuals' ability to work.
According to the Disability Insurance Plan Board of Management's 2022 Annual Report, mental health conditions accounted for 60.9% of all approved disability claims in that year. This marks an increase from previous years, highlighting the growing recognition and diagnosis of mental health issues in the workplace.
The unpredictable and episodic nature of mental illnesses often leads to periods where individuals are unable to function at a level that permits regular employment. This characteristic distinguishes mental health-related disabilities from many other conditions.
How do insurance companies determine if a mental health condition is severe enough for benefits?
Insurance companies use several methods to determine if a mental health condition is severe enough to warrant disability benefits:
- Medical documentation: Insurers rely heavily on medical records to assess the severity of a mental health condition. They look for:
- Detailed notes from psychiatrists, psychologists, and other mental health professionals
- Consistent therapy attendance and treatment plans
- Evidence of medication usage and adjustments
- Frequency of doctor visits and specialist consultations
- Functional assessment: Insurers evaluate how the condition impacts the individual's ability to perform job duties and daily activities. They consider:
- Cognitive functionality, including memory, concentration, and focus
- Ability to handle stress and regulate emotions
- Performance of household chores and personal care
- Treatment intensity: The level and consistency of treatment are used as indicators of severity. Insurers may look for:
- Regular visits to a psychiatrist
- Frequency and duration of therapy sessions
- Participation in intensive treatment programs
- Objective evidence: While mental health conditions are often subjective, insurers seek objective measures when possible. This may include:
- Results from neuropsychological evaluations
- Cognitive testing outcomes
- Pharmacogenetic testing results
- Work history and attempts to return: Insurers consider:
- Past work performance and any decline in job duties
- Failed attempts to return to work
- Employer feedback on job performance
- Duration and progression of the condition: Insurers assess:
- How long the condition has persisted
- Whether it has worsened over time
- Response to various treatments
- Corroborating evidence: Insurers may seek additional information from:
- Family members or caregivers
- Occupational therapists or vocational experts
- Surveillance and investigation: In some cases, insurers may use:
- Video surveillance to observe daily activities
- Social media monitoring to assess functional capacity
It's important to note that the claims process can be challenging for those with mental health conditions. Insurers often require substantial evidence to approve benefits, and the subjective nature of many mental health symptoms can complicate the evaluation process. Claimants should work closely with their healthcare providers to ensure comprehensive documentation and consistent treatment to support their disability claims.
2. Neoplastic Diseases (Cancer)
Cancer remains a significant cause of disability claims. The rigorous treatments, including surgery, chemotherapy, and radiation, often render individuals unable to maintain their work routines.
In 2022, neoplastic diseases accounted for 10.0% of all new disability claims in Canada. While advancements in medical treatments have improved survival rates, the journey through treatment often necessitates extended periods away from work.
3. Musculoskeletal Disorders
Musculoskeletal issues, encompassing injuries or diseases affecting muscles, nerves, tendons, joints, cartilage, and spinal discs, are prevalent among disability claims. These conditions can result from workplace injuries, repetitive strain, or degenerative diseases.
Data indicates that musculoskeletal disorders accounted for 19% of disability claims between 2014 and 2017. This category includes conditions like arthritis, back pain, and other joint-related issues that impede physical functionality.
4. Cardiovascular Diseases
Heart-related ailments, including heart disease, stroke, and hypertension, contribute to a notable portion of disability claims. The recovery and rehabilitation periods associated with these conditions often require significant time away from work.
While cardiovascular diseases were once the fastest-growing category of disability costs, recent trends indicate a shift, with mental health conditions now leading. Nonetheless, cardiovascular issues remain a critical concern due to their impact on individuals' overall health and work capacity.
5. Accidents
Contrary to common belief, accidents, including workplace incidents and car accidents, constitute a smaller percentage of disability claims. Between 2014 and 2017, accidents accounted for less than 10% of all disability claims. This statistic underscores that illnesses, rather than accidents, are more likely to lead to disability.
Age Distribution of Disability Claims
Disability can affect individuals across all age groups, but certain age brackets exhibit higher claim rates.
- Ages 50-59: This group represents the largest percentage of disability claims, accounting for 38% of all claims.
- Ages 40-49: Constituting approximately 25% of claims, this demographic is also significantly impacted.
- Under 40: Notably, one in six disability claims is made by someone under the age of 40, highlighting that younger populations are not immune to disabilities.
Gender Distribution
Disability prevalence and claim rates can vary between genders due to differing health issues and occupational hazards. Understanding these differences is essential for tailoring prevention and support programs effectively.
Regional Variations
Disability claim patterns can also exhibit regional differences across Canada. Factors such as industrial composition, healthcare access, and demographic profiles contribute to these variations. For instance, provinces with higher concentrations of physically demanding industries may experience more musculoskeletal-related claims.
Implications for Employers and Policy Makers
The predominance of mental health-related disability claims necessitates proactive measures from employers and policymakers:
- Workplace Mental Health Programs: Implementing comprehensive mental health support and intervention programs can aid in early identification and assistance for employees facing mental health challenges.
- Flexible Work Arrangements: Offering flexible schedules or remote work options can accommodate individuals managing chronic conditions, potentially reducing the incidence of disability claims.
- Preventative Health Initiatives: Encouraging regular health screenings and promoting wellness programs can help in the early detection and management of conditions like cardiovascular diseases and musculoskeletal disorders.
Conclusion
Understanding the landscape of disability insurance claims in Canada reveals a significant shift towards mental health-related issues as the leading cause. This trend underscores the importance of addressing mental health proactively in workplaces and society at large. By implementing supportive measures and fostering an environment that prioritizes mental and physical well-being, stakeholders can work towards reducing the incidence and impact of disabilities among Canadians.
Disability Insurance Common Questions
You can expect to pay 1- 4% of your current income or 2 - 6% of the monthly disability benefit amount you choose. Cheaper doesn't always mean better and the most important thing to pay attention to is policy definitions. In addition, your disability insurance cost depends on several factors including:
- Policy definitions such as whether the policy considers you disabled if you can’t work in any occupation, or if you can’t work in your occupation?
- Is your policy considered non-cancellable and guaranteed renewable, or can the insurance company raise the premium or cancel your policy at certain intervals like 5 years?
- The financial strength and ratings of the insurance company?
- Your gender, smoking status, height and weight
- Your financial information like bankruptcy
- Your occupation and the risks you have to take outside of work such as skydiving etc.
- Optional benefits added to the policy such as inflation protection or partial benefits
Disability insurance is like insurance for your ability to earn an income. It covers you if you can't work and earn an income in the event you get sick or hurt. You consult with your doctor of choosing and they recommend how long you need to be off and that will be the period you will get paid the benefit. Your benefit amount depends on your income and you need to be employed to be able to replace your income. You can claim multiple times if you get injured or sick multiple times over the life of your policy.
In general, your ability to earn a living is your most important asset as it funds your lifestyle. Disability insurance provides you with a percentage replacement of your income if for some reason your income is cut down or stops immediately due to an illness or injury and you can't work for a while. It is a foundational insurance that holds up everything else even your ability to pay your life insurance premiums.
Any type of disability insurance you have in place is good as long as it will pay you when you need it. The challenge of workplace disability insurance is that it's paid out before taxes which reduces your benefit at time of claim. So you typically end up with a 40% pay cut once you receive it. In addition, if you make over $100,000 a year you are covered up to a group maximum for most group plans. Disability insurance at work is beneficial if you make a relatively lower income. If you make bonuses or commissions as a major part of your income, workplace disability insurance doesn't cover that compensation.
It depends on the policy terms. Disability insurance will typically cover you for an injury or accident as standard. You will have to add an option for illness or sickness coverage. If you had a pre-existing condition stated in the policy at application, you will not be covered for that particular condition which is considered a policy exclusion. It's important to read the policy provisions to determine what is covered and what is not. Blue Alpha Wealth can walk you through and explain your specific policy provisions thoroughly.
Two main types of disability insurance in Canada are classified as short-term and long-term. Short-term disability insurance covers lost income for about three to four months while long-term disability insurance typically pays a portion of your lost income for anywhere from one year to your entire life. This is why it's important to buy your own long term disability insurance because after a while your workplace long term plan will stop paying and expect you to go back to work after two years.
You compare by looking at policy definitions and provisions such as the definition for what is considered a disability and when and how a claim will be paid. You also want to consider the financial strength and ability of the insurance company to pay. It's important to go through the contract language with an independent broker like Blue Alpha Wealth to ensure you get the right policy. Keep in mind that cheaper does not always mean better. The insurance company can potentially pay you millions over your life so both parties need to ensure they enter into a feasible agreement based on your health etc.
In most cases if you buy a private individual disability insurance policy, your benefits are tax-free as you would have used after-tax dollars to pay for your policy. If say for instance you get a policy through work, if your employer pays the premium you will be taxed on your benefits. If you pay the premium you won't be taxed. Always talk to your accountant for tax advice for your unique situation.
Yes you can. These are called guaranteed issue disability insurance policies. The drawback to these is that you will pay for the policy but at time of claim you will go through underwriting or medical exam to see if there are any major issues. The insurance company can deny a claim if they find something or an issue with your health that would cause them not to pay. It's always good to do medical underwriting prior to buying a policy so you know exactly what you're covered for, but it's not required.
This is the time that passes before the insurance company starts paying you your monthly benefit. It's like a deductible of time. It makes the cost of your policy affordable the longer you wait to receive benefits. You can have a 0 day, 15 day, 30 day or 90 day waiting or elimination period.
For example, if you have a 90 day wait period, the clock starts ticking after 91 days. So, from 91 days it might take another 30 days to process your claim such as the back and forth of getting paperwork from you like the claim form and your attending physicians notes on the injury or illness etc. and their recommendation. While it might seem long, in the long run it is better because it's always best to get it right and to lead to a successful disability insurance claim.
It depends on how long you are able to go without an income and can tap into your savings. Most policies are priced to have the sweet spot as a 90-day elimination period. The premium doubles by decreasing the waiting period to 30 days. In other words, the shorter you wait the sooner you'll get your benefits but it will cost slightly more in terms of your monthly premium cost.
In most cases individuals rely on savings to take them for 3 months. However, most people may not be able to afford going without an income for more than a month. Another option is to divide your benefit amount based on waiting periods. For example, if you require a $5,000 a month benefit you can divide it into two whereby you receive $2,500 after 30 days and the remaining $2,500 after 90 days to help reduce the cost.
This is a case whereby you have a known or unknown pre-existing condition that has a potential impact of a future disability. What this means is that the insurance company approves your application on the condition that they don't cover the pre-existing condition if it results in a future claim or leads to a claim. This exclusion could be temporary or permanent and if temporary the insurance company will let you know when the exclusion will be removed from your policy contract and under what circumstances.
It depends on the insurance company and the type and severity of the medical problems. The insurance company has three options:
- Charge you a higher premium for the policy
- Exclude the condition from the policy
- Decline insurance altogether
It's important to determine this prior to application in the event you want to take a dry-run before you apply. Critical illness insurance could be another option in the event your medical condition is more sickness related.
Group Long Term Disability Insurance:
- Benefits are taxable if your employer pays the premium.
- Benefits are based on a percentage of your base income or salary. Bonus and commissions are typically not covered.
- Benefits are typically reduced during a period of disability if you receive benefits from another source or work in a different occupation.
- More restrictive definitions within the policy (qualification for benefits may require you to be unable to work in ANY occupation).
- No rate guarantees.
- Partial disability may not be covered.
- Policy can be changed or canceled by the insurance company or your employer at any time.
- Policy is connected to the employer and generally not portable.
Individual Disability Insurance
- You receive benefits tax-free if you pay the premium.
- Quality plans will cover you in your own occupation/specialty.
- More liberal definitions within the policy to pay you more money in more claims scenarios.
- Higher monthly benefits.
- Benefits can increase with inflation.
- Rate guarantees to age 65 or for a lifetime.
- You own the policy and can take it with you to a new job or occupation (portability).