Protect Against Setbacks with Disability Insurance
October 23, 2017Building Your Future
My wife and I were recently in the market for a new refrigerator. We decided we didn’t want anything fancy and after looking at various options, found the model we were looking for online. It could be delivered quickly and the old refrigerator would be removed. The only other question we needed to answer was whether or not we wanted the extended warranty.
How many times have you heard that question after a major or even a minor purchase? I’m not going to make any statements about whether you should or should not purchase warranties on appliances, electronics or other assets. However, this question did remind me that most people don’t think much about their most important asset when it comes to buying an extended warranty of sorts.
Thankfully, many Canadians use insurance to protect their assets, from cars to homes to jewelry and yes, their lives. But most forget to insure their most important asset– their ability to earn a living. If an injury or accident renders you disabled early in your career, the wages lost can have a profound impact on your ability to maintain your home, your automobile and your well-being.
While many people recognize the need for life insurance, many do not understand why they need disability insurance. Statistics indicate that a typical 30-year-old male has a four times greater chance of becoming disabled than he does of dying before age 65. And, one in six Canadians will be disabled for three months or more before the age of 50.
Your income may cease due to an injury but your monthly bills will not and this should trigger even the most optimistic of us to act. A disability may last for months or even years. Consider the following situations and ask yourself if you are prepared if any of these were to happen to you:
- An administrative assistant may need months of recuperation following a serious car accident.
- A carpenter suffers a broken arm while skiing and may not work for eight weeks.
- A nurse has to “take it easy” for a period of time after suffering a heart attack.
- A store manager does not have the strength to work after chemotherapy saps his or her energy.
- An accountant’s ability to reason with numbers may be affected by a stroke.
- A firefighter may experience a stress disorder, due to interaction with repeated trauma – making it impossible to work.
There are two main options for you to consider when thinking about protecting your ability to earn a living:
Individual disability insurance plans
There are definite advantages to owning an individual disability insurance policy, which is something you can purchase through a life and health insurance agent/financial advisor. Group coverage, through your employer, ceases when you change jobs but an individual plan does not. And because you pay the monthly premiums, the benefits are tax free.
An individual plan can give you the most comprehensive and flexible coverage because it can be tailored to meet your needs. With some plans, the payment of benefits is based on the loss of income instead of the complete inability to work. This is helpful if, as a result of an accident, you can still work but not in the same capacity as you did before. In other words, you might not be able to work for the same number of hours or do the same type of work you did before you became disabled.
Many plans will include a feature that waives your premium payments while you are disabled. Other plans will offer a guarantee which permits you to increase your coverage (at certain times and within limits) without having to answer additional health questions. Some disability plans pay benefits for only specified lengths of time (usually two to five years), and some pay benefits for as long as you remain disabled or until age 65, whichever comes first.
Group insurance plans
Typically a group plan, through your place of employment, provides various levels of coverage:
- Sick Leave
- Salary Continuance
- Short Term Disability (STD)
- Long Term Disability (LTD)
It is in your best interest to ensure that you fully understand your insurance coverages under your employer’s group benefit plan. Typically, a group benefit plan won’t offer as many features and benefits as an individual plan and may have significant gaps particularly for disabilities lasting more than two years, partial or recurring disabilities. However, group plans offer a solid base of protection that you can build on with an individual policy to create a plan that is both comprehensive, and cost effective.
Insuring your ability to earn an income is a key financial principle in protecting your family against setbacks. Getting a warranty on your most important asset with disability insurance is much more important than the extended warranty we may or may not purchase on our appliances. We hope we never need to use it but having it provides a comfort level and peace of mind in case of the unexpected. Working through the complexities of disability insurance knowing what’s at risk can be a challenge for most people. Speak to a knowledgeable financial advisor to understand how you and your family may benefit from the addition of an individual disability insurance plan to your portfolio.
Join us on the journey to a healthier relationship with money by visiting our website to request a FREE copy of the book, Your New Money Mindset (while quantities last). You may also connect with one of our Financial Representatives who would be happy to conduct a free financial review with you.
FaithLife Financial is a financial services organization that helps Christians blend faith and finances to be wise with money and live generously – serving God, families and communities. David Baker has been in the financial services industry for over 25 years. He lives with his wife and two children in Waterloo Region where they are active members in a local congregation.