Let’s start with some common questions about insurance plans:
What part does your income play in getting coverage?
Income plays a major part in getting coverage and the ceiling of monthly claim benefits available to you. Most insurance companies will request income information from you at application time. Some ask it verbally and others want proof and will ask you to supply the T1 Generals, business expenses, company statements and spouse T1 Generals if you are income splitting.
If you supply income verbally, make sure the correct income is entered on the form, as you are required to sign that this amount is true. Do not over state income in order to get a higher amount of monthly benefit coverage. If you do that, come claim time, you may be asked for proof of that income and if the original amount was incorrect, your claim may be denied and even more, your policy maybe be rescinded and recorded against you.
Why do insurance companies want to know your income?
If you were an employee of a company that covered you for disability income benefits, you would be covered up to 66 2/3 percent of your income. The idea behind is that it basically forces claimants back to work in order to obtain their full prior earnings and get them off the claim quicker.
For the self employed the benefits amount is gauged on declared net earned income and through income tax reporting. If a person’s income is kept low to lessen that person’s tax bill, this will reduce the amount of cover available to them.
Maximum benefits available are based on 75 percent of net income and sometimes it’s also based on an average of a person’s last two years net income. Some companies will gross this net income up between 10 to 15 percent.
The two major differences between plans
Firstly there is loss of income plans and secondly loss of use plans.
Loss of income plans pay you up to the maximum monthly benefit at claim time. Meaning if you are covered for $4,000 of monthly claim benefit, you will receive between 0 to $4,000 a month. The amount you’ll receive is based again on the 75 percent rule of your declared net income at claim time and if your income is lower at that moment in time, that’s in comparison to what it was when you first applied for the coverage, your monthly claim benefits will be reduced.
Loss of use plans pay a guaranteed amount of monthly claim benefit regardless of what income you are making at time of claim. If you have $4,000 of monthly claim benefit, you will receive this full amount. This type of coverage normally costs a little more, but is well worth it come claim time.
Next weeks edition will cover Accident Only Plans Vs Accident & Sickness Plans