These daily financial tips are designed to be short ideas covering different aspects of family and business finances. They are short pieces intended to provide information to enable individuals, families and businesses to make informed financial decisions. Not all tips will apply to every situation, but over the course of a year, most financial topics will be covered. Check in regularly and share with friends and associates.
This week we are looking at different types of life and health insurance and the role they play in laying foundations for a financial plan. While Life Insurance is one of the more common forms of insurance, Disability Insurance is probably more critical to maintaining a solid financial plan. Disability Insurance pays an income stream in the event you can not work (either due to illness, sickness, accident, injury, etc). In other words, it pays the bills when you can’t. Many people think there are government assistance programs or they have coverage through work for income supplement. This is usually not the case. Government programs generally only pay in the event of a severe, life long disability. They are hard to qualify for and take time to process and amounts are minimal.
Many people think they have some form of disability coverage through work. Many employer plans may only cover health and dental benefits, but not disability benefits. It is best to review and check your work coverages to fully understand what coverages you do have. If you do have disability coverages through work, review what the terms and limits are (how long you’re covered for, coverage amounts and limits, how soon it pays out). It may or may not be enough to cover your monthly living costs.
Three things will always affect the cost of insurance, regardless of the type of insurance – age, amount of coverage and smoking status. Because Disability Insurance pays a monthly income stream and will pay out many times over the course of the policy, there are other variables that will impact the premiums and costs. The nature of your work or occupation will impact the cost. The higher the risk of your work (Ie working on construction sites will be riskier than a desk position, etc), the higher the costs as there’s greater risk to injury.
As Disability Insurance pays a monthly income stream, how soon you want the monthly benefits/payments to start and how long you want them to last, will also affect the premium costs. The sooner (ie short term Disability) you want the payments to start and how long you want the payments to be paid/last will affect the cost.
There are many variables to Disability Insurance so discuss the various options with a licensed insurance advisor to ensure you understand your options and the best structure that suits your family needs. Before reviewing Disability options, it is best to understand what coverages you may or may not have through work. It is also best to have a good understanding what your monthly living costs are (essential and non-essential). If you are married or have a partner who contributes to the monthly living expenses, factor this in as well.
Disability Insurance is considered a living benefit – which means you’ll benefit/receive the monies to help pay your monthly bills. We never know when sickness or injury will affect our ability to work. 1 in 3 Canadians will suffer a disability longer than 90 days at least once in their lives before the age of 65. The number one reason people default on their mortgages and lose their homes is due to disability. How long could you manage to pay your monthly bills if you weren’t working? Check with a licensed Insurance advisor to review your options.
Share these ideas with friends and family and come back to check out daily financial tips and ideas. If there are subjects you wish covered or questions, please email me and I’ll include them in future posts.