Maximum issue limits for disability insurance

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Maximum issue limits for disability insurance

The maximum issue limits for disability insurance is the maximum coverage you can purchase based on your age, occupation class, and income. Disability insurance is designed to replace a portion of your income, up to a maximum amount. By basing the benefit on income and replacing up to a certain amount, disabled individuals do not suffer financial hardship, and at the same time maintain the incentive to return to work.

Besides income, the maximum issue limits for disability insurance also depend on the occupation class and age of the insured. As you can see in the table below, individuals in a safer occupation and aged 55 and under are permitted to purchase more coverage than those employed in more hazardous occupations and older.

The maximum amount of monthly benefit you can buy for disability insurance based on your age and occupation class.
   Occupation class
18 to 55$25,000$15,000$7,000$5,000$3,500

After taking age and occupation class into consideration, your earned income is then used to calculate your ultimate maximum issue limit. Earned income consists of all compensation for services performed, less business expenses. This means that employees and self-employed individuals will have different calculations to arrive at earned income.

The maximum amount of monthly benefit you can buy for disability insurance based on your income. The ultimate benefit amount is for self-employed individuals who are not eligible for employment insurance (EI) or for employees with EI and applying for a 90 day or longer elimination period. Employees eligible for EI who are purchasing a policy with less than a 90 day elimination period will have a reduced initial benefit to integrate with EI benefits.
Annual earned incomeMonthly earned incomeInitial benefit with EIUltimate benefitBenefit as a percentage of income

The table of age and occupation takes precedence over the earned income table. For example, a 57 year old individual belonging to occupation class 2A with $200,000 of earned income will only be eligible for $4,000 of monthly benefit instead of $8,225 as listed in the second table.

From the table, you can see that lower income individuals are able to replace a larger portion of their income through disability benefits. As much as 90% of income is replaced for someone earning $12,000 annually, while only 30% of income is replaced for someone earning $1,000,000 annually. The reason is that the earned income is gross income before taxes, and higher income individuals will have a greater proportion of their income reduced by taxes.

It’s important to note that you should always purchase the amount of coverage that you are eligible for, since your goal is to replace as much of your income as possible in the event of a disability. An exception to this would be if you were supplementing your group disability plan with a personally owned policy.

Determining the amount of disability coverage for an applicant is a very important component of the underwriting
process. It is important for the insurance company to provide sufficient income, so disabled policyholders do not suffer financially, while at the same time not eroding any incentive to return to work.

Data collected from Canada Life’s Lifestyle Protection Plan.

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