For many of us, we wake up every day and take our ability to earn an income for granted. We go to the office or the work site, put in a days work and come home. For those with a disability preventing them from performing their previous occupation, life can become pretty hard financially very quickly
Imagine for a minute – you are out with your buddies at the beach, or maybe pool side. You are all having a good time, when your best friend decides they want to show everybody how to do a cannonball (c’mon, we ALL have that friend). They climb up on the diving board, take a run for it and soak everybody good.
Suppose they slipped and fell on the diving board and had a debilitating accident. Your best friend has gone from weekend warrior to potentially a paraplegic. In the hospital for 5 months, two years of intensive physiotherapy to just resume their life. It can happen, and it can happen in the blink of an eye and without notice.
Car payments, rent, and mortgage payments are still due. If you are lucky enough to have some disability coverage through your employer, you might have some coverage in the event of a sickness or injury. The vast majority of Canadians without disability coverage often rely on savings, investments, and family to help them through a disability.
A typical 30-year-old has a four times greater chance of becoming disabled than he does dying. Further, 1 in 6 Canadians will become disabled for 3 months or more before the age of 50.
There are two main types of disability policies. Long term disability (LTD) provides an monthly income. In the event of a serious illness or injury, you receive that monthly income. Critical Illness (CI) provides a lump sum payment. In the event you become critically ill, the benefit is as a lump sum.
- If you have long term disability coverage, it may be time to contact your company HR department or office manager and ask to see a copy of the employee booklet. They can walk you through your disability policy and tell you what percentage of your salary you have coverage for. Furthermore, your financial advisor can help you decide whether or not you have enough coverage to meet your financial needs. Some work policies pay 66-75% of your salary, tax free, if you become disabled. Those same policies may have ‘caps’ on the monthly benefit, however. A capped benefit may only pay an overall maximum amount and that may not be sufficient to provide you with an income. Your advisor will help you decide if you need some extra insurance to top up work coverage. If you don’t have coverage through your employer, your advisor can help you obtain some.
- If you purchase a critical illness policy through an independent broker, it will pay a lump-sum benefit if you are diagnosed with one of the illnesses specified in the policy. The benefit that you receive is not taxed, and it does not affect your disability income. The idea of having this lump-sum payment is to help pay for things like retrofitting your home, paying off loans or debts, or childcare. Critical illness insurance helps give you some financial peace of mind while you recover.
Which type should I get?
That depends on your specific situation. Your independent broker will help you decide on what type of policy is right for you, and in some cases you may be able to bundle your options together. As part of a needs assessment, your advisor will gain a glimpse of your lifestyle and income needs, and help you decide on how much insurance is right for you while staying well within your budget. Lastly, take a look at your current income and lifestyle and speak to your advisor. Having the appropriate amount of insurance coverage in place is a very wise financial decision.