1. Do your clients have enough?
Disability insurance offset / top-up
Information for advisors. This material is not intended for use with clients.

2. Agenda The possible gaps in coverage Target clients What is top-up?
What is offset?
The offset/top-up tool

3. Gaps in Coverage Do your clients have enough?
If your client has disability insurance coverage through their employer-sponsored group insurance plan, part of their income may be replaced if they’re unable to work due to sickness or injury. But will those benefits be enough to cover essential expenses if the unexpected happens? It may be time for them to upgrade their protection with an individual disability insurance policy.
Gaps in Coverage

4. The risks are real
Nearly 1 in 10 working-age Canadians reported having a disability in 2012.*
A 30-year-old male (non-smoker) has a 36% chance of becoming disabled before the age of 65.**
Your clients may know someone who’s been disabled and unable to work for several months. The risks are real.
SOURCE: *Statistics Canada. Canadian Survey on Disability,
**Society of Actuaries, “Report of the Individual Disability Experience Committee Analysis of Experience from 1990 to 2007”, March The incidence rates are split by gender but are not smoker distinct. Assumed occupation class 2A with 90-day waiting period.

5. The opportunities are real
48% of Canadians have group disability insurance through their work.
Many don’t know if it will be enough to cover their expenses.
For the 52% of Canadians who do not have disability insurance through their employer, individual disability insurance may fill the gap.
But there may also be a gap for clients who have group long-term disability coverage.
Group disability insurance can be a great foundation. However, it often has a limited amount of coverage. There could be a gap between monthly disability payments and monthly expenses. You can set up an individual disability insurance policy to provide your clients with the maximum benefit payable to fill the gap left by group long-term disability.
SOURCE: RBC Financial website. Accessed June 5, 2018.

6. Amount of coverage Group Individual Often limited amount of coverage
The client can choose the plan design to fit his or her needs
Employer chooses the benefit plan design
Group long-term disability coverage can be a great foundation. However, it often has a limited amount of coverage leading to a possible shortfall between your clients’ expenses and monthly group long-term disability payments. You can set up an individual disability insurance policy to provide your clients with the maximum benefit payable to fill the gap left by group long-term disability.

7. Overall maximum vs. Non evidence maximum
The overall maximum is the maximum amount of insurance that the insurer will provide under the terms of the contract.
The non-evidence maximum is the amount of insurance that the insurer will provide to employees without requiring medical evidence of good health.
Often group long-term disability coverage may state that it covers 66 2/3% of the employee’s monthly earnings. However, the employee may also be subject to a non evidence maximum as well as an overall maximum.
For example while the benefit formula may say the employee has long term disability coverage for 66 2/3% of their income they may also be subject to a NEM of $4,000 and an overall max of $6,000.
If the employee has an income of $250,000 annually and they want more than $4,000 of monthly coverage they will have to provide medical evidence for an amount up to $6000. They have no ability to get coverage above $6,000.
As a result your client may not feel comfortable that the coverage they have will meet their needs.

8. How much of your clients’ income is insured?
Group long-term disability coverage may only cover salaried income.
Group long-term disability coverage is dependent on income at the time of claim.
If your client owns a business and relies on corporate profits or dividend income they may not have enough coverage.
If your client is dependent on bonuses, commissions or overtime, their coverage may not be enough.

9. Definition of a disability
What is the difference between these definitions?
Regular occupation
Any occupation
Regular Occupation
The occupation(s) in which the insured is regularly engaged at the time he or she becomes disabled, except, if the insured regularly engages in any other gainful occupation between successive periods of disability, that gainful occupation will be considered the insured's regular occupation. As per disability advisor guide.
Any Occupation
Any occupation in which the insured can be gainfully employed. Gainful employment means:
1. a person is medically able to perform;
2. for which he/she has at least the minimum qualifications;
3. that provides income of at least 50% of his monthly earnings; and
4. that exists either in the province or territory where he worked when he became disabled or where he currently lives.

10. Definition of a disability Group vs. Individual
Typically has a less comprehensive definition
Ability to choose from multiple definitions
The definition can change after a predetermined amount of time
Broader in scope
Group long-term disability typically has a definition that changes after 24 months from ‘Regular Occupation’ to ‘Any Occupation’. Two obvious issues with this are:
Your clients will no longer be entitled to group long-term disability benefits if their disability does not prevent them from being gainfully employed.
There is no guarantee that their gainful occupation will pay the same as their regular occupation, leaving a gap between their new income and their expenses.
An individual policy can be set up to include a Regular Occupation Rider; meaning that as long as the client cannot work their regular occupation, they will receive DI payments. This rider is a huge benefit to professionals and trades people who work in specialized, higher-paying industries.

11. What about partial disability?
Meet Tom, an advisor who prefers to go to his clients. Imagine Tom broke his leg and was no longer able to drive.
Would Tom be considered totally disabled and receive group long- term disability benefits?
Individual disability insurance can include a partial disability rider to protect an employee from this.

12. Cost of living benefit Group Individual
Often coverage does not account for increase in the cost of living
A rider can be added to the policy to account for
cost-of-living increases
It is likely that your clients’ group long-term disability coverage does not account for increases in the cost of living. An obvious issue for your client is that as cost of living expenses increase and their coverage will not adjust for this, leaving them with a gap between their group long-term disability monthly payments and monthly expenses.
An individual disability insurance policy can include a Cost of Living Benefit. The Cost of Living Benefit helps reduce the impact of inflation by providing yearly adjustments to the monthly disability benefit during disability.

13. Cost of living benefit example
Lifetime earning potential
$2,903,410
Long-term disability benefit without cost of living benefit
$1,485,000
Long-term disability benefit with cost of living benefit
$1,897,691
The difference
$479,281
A 40-year-old earning $85,000 a year has a lifetime earning potential (to age 65) of $2,903,410 (assumes a 2.5 per cent annual increase)
A monthly long-term disability benefit of $5,000 without a cost of living benefit would pay $1,485,000. This would leave a shortfall of $1,418,410.
With a cost of living benefit they would receive $1,897,691. (assumes a 2% increase annually) That’s $479,281 more than without a COLA

14. Renewal and ownership Group Individual
The clients’ employer is the owner of the policy and controls the policy.
The client is the owner and has control of the policy.
The employer can change the coverage amount or cancel the policy altogether.
The policy is portable and will remain in force despite a job change.
Your clients’ employer controls their group long-term disability coverage. The employer can make changes to the amount or cancel the coverage all together if they choose to do so. This could leave your client with less coverage than they had before or possibly no coverage at all.
With an individual disability insurance policy, your client controls the policy. The coverage amount will never decrease and can never be cancelled. If they change careers or lose their job, the policy goes with them.
Note: Portability is particularly important for clients who: are highly motivated, may want to change roles or employers, people who are entrepreneurial.

15. Do your clients have enough?
Target clients

16. Target clients
Clients who are uncomfortable with the definition of ‘disability’ in their group coverage
Group LTD coverage may be capped due to plan maximum or non-evidence maximum for high income earners
Business owners who rely on uninsured income sources such as corporate profits and dividends
Motivated individuals who may be looking to start their own business or change careers

17. Do your clients have enough?
What is top-up?

18. Top-up
A group long-term disability plan:
Covers a percentage of earnings up to a maximum benefit amount.
Maximum benefit amount may be low in relation to the clients’ income.
Top-up: Helps cover the shortfall between the group maximum and the allowable issue limit
Note: The drawback of the top-up plan is that the client can be underinsured if the group benefit doesn’t pay, such as with a strict definition of disability. This is where offset can help.

19. Case study Brooke: 30 / Single / Female / Non- Smoker
Architect (Class 4A)
Brooke makes $65,000/year (net income $4,300/month)
Brooke’s group long-term disability monthly benefit is $3,000
Brooke’s monthly expenses are $3,500
Brooke has a gap of $500 between her group long-term disability monthly benefit and her monthly expenses.

20. Case study: Top-up solution
Individual disability insurance to offset group long-term disability insurance:
$700 monthly benefit to bring Brooke to $3,700 insurable maximum
Regular occupation definition (to age 65)
Cost of living benefit
Brooke’s individual policy will pay $700 monthly on top of her group long-term disability to ensure her expenses are covered and she has a little extra for unexpected expenses. Her individual policy tops up group coverage for difference between $3,000 and $3700 for the duration of group long-term disability payments
Note: 10% discount for group complementer rider [CL]

21. Top-up
Current income
HEALTHY
Current monthly expenses
food • shelter
transportation • lifestyle
Group disability
insurance coverage
GAP
DISABLED
Potential individual
disability insurance
(Click)
When your clients are healthy, they are earning an income and are able to pay their monthly expenses.
If they become disabled, it’s possible their group coverage may not be enough to cover all of their expenses.
This would leave your clients with a GAP between their group ltd coverage and their expenses.
However, an individual disability insurance policy can be used to top-up their group coverage. G

22. Do your clients have enough?
What is offset?

23. Offset A group long-term disability plan:
Has a definition of disability that doesn’t fully suit the client’s needs.
The client wants coverage that can be maintained in force should they no longer have group long-term disability coverage in the future.
Offset –gives assurance that even should the group coverage no longer exist, the client is still covered by the individual policy.

24. Case study: Offset solution
Individual disability insurance to offset group long-term disability:
$3,700 monthly benefit (max. available)
Regular occupation period extender rider
Cost of living benefit
Brooke’s individual policy tops up her group coverage for difference between $3,000 and $3,700 for duration of group long-term disability payments. If/When Brooke is no longer eligible for her group long-term disability payments, her individual policy payments increase to $3,700 to offset the loss of her group payments.

25. Offset
Current income
HEALTHY
Current monthly expenses
food • shelter
transportation • lifestyle
Potential individual
disability insurance
Group disability
insurance coverage
Potential individual
disability insurance
DISABLED
GAP
GAP
(Click)
When your clients are healthy, they are earning an income and are able to pay their monthly expenses.
If they become disabled, it’s possible their group coverage may not be enough to cover all of their expenses.
This would leave your clients with a GAP between their group ltd coverage and their expenses.
However, an individual disability insurance policy can be used to top-up their group coverage. C

26. The offset/top-up tool
Personalize risk
The offset/top-up tool

27. The tool Shows: Impact to your clients’ lifestyle
Potential gap between current coverage and expenses
Income replacement ratio with group insurance
Premium as a percentage of income
How an individual policy can bridge the gap

28. What’s new? Calculates maximum insurable amount
Now uses net income instead of gross income
Shows improved income replacement ratio

29. What’s next?
When it comes to disability insurance, ensure your clients are covered.
Review their group disability booklet with them.
Show them how individual insurance can fit in their plan.
Consider this positioning to the client:
To help maintain the lifestyle you deserve and to reduce the risk of not qualifying under group coverage definitions, consider upgrading your protection with an individual disability insurance policy.
To show your client how it works:
You can create a report from Enhance group insurance with top-up or offset to support your recommendation of individually owned disability insurance as an offset to group insurance or to top-up group insurance. This chart provides the opportunity to discuss the potential shortfall and how insurance can be a solution to help reduce gaps in coverage.
The examples in this presentation are provided for illustrative purposes only and are current as of July Situations will vary according to specific circumstances. Disability insurance is provided by Canada Life.