Preet Banerjee

Has the OAS change affected your disability insurance coverage?

Special to The Globe and Mail

Now that 67 is the new 65, using future Old Age Security payment eligibility as a yardstick, it has occurred to me that the disability insurance policy I just applied for might no longer meet my needs. It only pays out to 65.

The increase in age for OAS payments (as well as for the Guaranteed Income Supplement) will be phased in over a period of time. That means those born between 1958 and 1962 could have a shortfall in disability insurance coverage between 1 month and 24 months. Anyone born in 1963 faces the full 2-year gap.

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Many Canadians hope to retire before 65 and those who have a healthy pension or have saved enough during their working career to cover the shortfall in OAS until 67 could indeed still retire. But not everyone will be in that boat. Many will now have to work right up until 67 before they even consider hanging up their hats.

But what if, at age 65, they are disabled? Two years of being unable to work, without disability insurance payments coming in, could cripple their finances.

I called an insurance industry professional who agreed to speak about the topic, as long as they could remain anonymous. They did so because no one had brought up this idea before and as such, there is no official position they could reveal. They did, however, provide me with some speculation as to the implications.

If you are enrolled in a group disability plan through your benefits package at work, the solution should be straightforward as the group policy is re-evaluated regularly. If the company decides to extend disability coverage up to age 67, they get a new price from the policy provider. Whether they decide to extend it is another matter.

If you have private insurance, there are currently three main options for coverage in terms of duration: two years, five years, or “to age 65”. If you’ve chosen on of the first two options, then your situation is essentially the same. You were facing a large shortfall before, now it’s a large shortfall plus two more years. However, if you picked the “to age 65” option, this is where something has to be done by the insurers to offer a plan modification, or to sell top-up policies.

Also consider this: What if something has changed to your health that would now make you uninsurable? Would that exclude you from purchasing a top-up policy? What if you are currently disabled for life with a policy that only pays out to 65 but fall into the category of people not eligible for OAS until 67?

Only a small minority of Canadians will be, or could become, disabled during this two-year gap, but it would be a big problem for those that do. While the insurance industry figures out exactly how to modify their product offerings to address this gap, the best advice for you in the interim is to review your financial plan and incorporate the recent changes to the retirement system.

Preet Banerjee, B.Sc, FMA, DMS, FCSI, is a W Network Money Expert, and blogs at wheredoesallmymoneygo.com. You can also follow him on twitter at @PreetBanerjee

Follow on Twitter: @preetbanerjee

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