Disability Insurance for Senior Citizens: Cost and What You Must Know

Disability Insurance for Senior Citizens: How Much is it and What Should You Know?

How does Disability Insurance work?

Unlike Critical Illness Insurance, Disability Insurance coverage replaces a portion of your income if you become disabled and are unable to work, even as a senior.

This insurance provides monthly payments, ensuring you can cover essential expenses and maintain your standard of living during the period of your disability. These benefits continue until you are able to return to work, offering peace of mind and financial stability during a challenging time.

Are there any coverage limits for a disability insurance policy?

Disability insurance policies have coverage limits to ensure that you do not receive more money while on disability than you would have earned while working, maintaining an incentive for full recovery. Generally, disability payments are limited to 50%-60% of your gross pre-tax income. The exact maximum allowable depends on your occupation class and the caps set by the insurance company. These limits help balance providing financial support during a disability and encouraging a return to work when possible.

Is disability insurance tax deductible?

Disability benefits received are not taxable if you have a personally owned disability insurance policy or if the policy is structured as an employee benefit. When it comes to premiums, if you personally own the disability insurance, the premiums are treated as a personal or living expense for income tax purposes and are not deductible. However, if a personally owned disability insurance policy is structured as an employee benefit, the cost of the premium payment is deductible to the employer as a salary expense.

Disability insurance – important to know

It is important to understand that disability insurance replaces only a portion of your income during your disability, not the entire amount. Additionally, there is typically a waiting period before you start receiving payments. This waiting period is the number of days from the date you become disabled until the benefit start date. The length of this period, chosen when you apply for the policy, can range from a month to a year. The longer the elimination period, the lower the premiums are likely to be. Once this period is completed, your monthly benefit payments will begin.

Disability insurance, example

Jessica, diagnosed with a mental health condition (which is currently the largest driver of disability claims), has her claim approved. Over the next 120 days, she receives bi-weekly payments equal to 65% of her income. Jessica prioritizes self-care during this time, regularly visiting a therapist and taking medication prescribed by her doctor. After 120 days, she experiences significant improvement and is able to return to work, leading to the end of her disability payments.

Disability Insurance Cost for Senior Citizens

Let’s look at a comparison of disability costs for coverage of $5,250/month for both senior male and female applicants. We will use this criterion: 60 years old, no serious health pre-conditions, non-smoker.

Disability insurance policies often offer additional riders, such as the Future Income Option (FIO), Cost of Living Adjustment (COLA), and Retirement Protector, which can be added for an extra cost. These riders provide additional benefits and protection, allowing policyholders to enhance their coverage based on their individual needs and financial goals.

* Quote as of April 2024 from RBC Insurance (w/o FIO, COLA, and Retirement Protector riders that come at additional costs)

Disability Insurance over 65

The maximum age at which you can purchase a new disability insurance policy varies by insurer but is typically between 60 and 65 years old. However, some insurers may offer policies to individuals up to age 70 or even older. Find out more about Seniors Insurance here.

Disability Insurance: Summary

Elderly individuals may need disability insurance for several reasons. As people age, the risk of developing disabilities or chronic health conditions increases. These conditions can significantly impact one’s ability to work and earn an income. Disability insurance can provide financial protection by replacing a portion of lost income if an elderly individual becomes unable to work due to a disability. This coverage can help maintain financial stability and cover essential expenses, such as medical bills and daily living costs, during a time when earning an income may be challenging or impossible.

Our advisors are well-versed in the distinct financial and health challenges faced by seniors. With extensive expertise in disability and critical illness insurance for this demographic, they tailor recommendations to suit each individual’s needs. Reach out today for a no-obligation discussion with our experienced insurance professionals by completing an insurance quote on a side.