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Lecture 8

MTHEL 131 Class Note Lecture 8

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University of Waterloo
Mathematics Electives
David Kohler

[Nov. 9, lecture 8] 1 Disability Income Insurance The Chances of Disability  For people who are age 25, the odds that they would suffer a long term disability between now and age 65 (inability to work for at least 3 months or longer): 60%  On average, for those who are disable, that disability will last 2.1 years  For a 35 years old person, the odds that they would suffer a long term disability between now and age 65 (inability to work for at least 3 months or longer): 50%  For a 45 years old, the odds is even lower  Because for the younger people, they have more time and more chances for things to go wrong The odds of getting a car accident: 1 in 100 cars would suffer damage in a year The odds of a house burn down: 1 in 2,000 or 3,000 homes would burn down  Death through heart attack from 1950 to 2000 dropped by 30%; having being disable by heart attack went up by 40%  Death through stroke from 1950 to 2000 dropped by 50%; having being disable by heart attack went up by 35%  Death through diabetes from 1950 to 2000 dropped by 25%; having being disable by heart attack went up by 35% - Far fewer people are dying from heart attack, stroke, or diabetes, but a whole lot more people are unable to work then before because of heart attack, stroke, or diabetes - Because medical technology can keep people alive - Hence disability income insurance is very important Income Saving DEBT Expenses Being Disable [Nov. 9, lecture 8] 2 - Being disable, expenses goes up: physical day-care; drug; trip to specialists - If income gone, where would the money come from to pay the raising expenses? 1. Saving 2. Borrowing (no loan for people who cannot pay it back) 3. Liquidating asset (sale your stuff; rarely get fair market value)  Disability Income Insurance (protection): provides monthly payment when you are unable to work Underwriting for disability income insurance is similar to life insurance  The major thing in life insurance they want to know about: health  Disability underwriter most interested in: occupation  Disability underwriters break down occupations into 5 categories  Class 1 (top class): Professional (doctors, lawyers, dentists, executives, earning $100,000 or more per year)  Class 2: Other executives, mangers earning less than $100,000 (but still doing white collar work)  Class 3: People working in retail, employees performing light manual work, computer technicians, etc  Class 4: Skills trades (carpenters, electricians, plumbers)  Class 5: General labors (no skills, more hazards) (Premiums are going up as moving down the classes)  The insurer would review the claims of anyone particular class, and if those claims in that class are higher than expected, they will raise the premium for that entire class Where can a person get disability income insurance? 1. Individual disability insurance policy - Insured is the policy holder 2. Group, through employers, group 3. Federal government, through Canada Pension Plan (CPP) - Payment made by CPP: retirement; disability section: monthly disability income payments under certain circumstances to the individuals who are disable 4. Provincial government, through Worker Safety Insurance Board (WSIB) (worker compensation): monthly payment 5. Riders on life insurance policy: Waiver Premium (WP); Disability Income Rider (DIR) [Nov. 9, lecture 8] 3  One thing you need in order to apply for disability income insurance, is income If you are stay home mom/dad, and if
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