From our earliest adult years, we strive to acquire the knowledge and build the skills that will set us on a path toward a comfortable future. The ability to engage in productive work is a matter of personal fulfilment, social pride and of course economic necessity.
Whether you’re a party of one, a mutual contributor in a committed spousal relationship or a provider to a house full of dependants, the spectre of not being able to work – temporarily or permanently – can be a frightening prospect.
When thinking of our most valuable belongings, common things that may come to mind are our
home, cars and other items we’ve accumulated.
We cherish these possessions for the feelings
they produce in us, which is why we treat them
with care, and insure against their damage or loss.
But take a short step back and consider how you obtained these things. You earned, supported your family, and then carefully spent your savings. So, even before protecting the ‘stuff’, consider disability insurance as a priority to protect the source from which it all came: Your income-earning ability.
With disability insurance, an insured pays periodic premiums for the insurer’s promise to replace a portion of earned income should the person become disabled under the policy’s definitions.
Tax treatment follows from how premiums are paid:
- Employer-paid group plan premiums are not a taxable benefit, but disability income is taxable
- Employer-paid individual plan premiums are a taxable benefit, but disability income is tax-free
- Personal premiums on an individually-owned plan are not deductible, but disability income is tax-free
Notably, employer-funded policies usually have definitions specific to that work activity, and will cease to be available if one is no longer employed there.
By contrast, an individually-owned plan arranged directly with an insurer can be kept in place as
long as premiums are paid under its terms, even if there is a change from a current employer.
As agreed with the insurer, the definition to trigger payment can range from inability to work in one’s own occupation through to any occupation, with premium cost increasing as definitions broaden.
