Have you ever thought about what would happen if you became injured or sick enough that you would no longer be able to go to work everyday or run your business? Do you have a plan in place that would continue generating or replace your income during a period of time where you were unable to earn one? If you do not already have a plan in place then disability insurance is something that you need to consider.
Disability insurance is one of the most overlooked types of insurance available in the market. This is partly due to many reasons, one of which is life insurance agents not offering it to clients and clients not knowing that it is available. Regardless of who or what is to blame, many Canadians that are working or self-employed do not have any level of income protection. If you are fortunate enough to be aware of the risk associated with a debilitating injury or illness and the effect it may have on your income, you should speak with a life and health insurance broker that understands the product and can help you find the right coverage.
If you do not already know, disability insurance is a product that provides income protection against a debilitating injury or illness. If an injury or illness prevents you from being able to do your job or running your business, disability insurance will provide you with a specific dollar amount every month to replace a percentage of your income, while you remain disabled tax free. It is a product that allows you to continue providing for your family, paying your bills and maintaining a similar quality of life.
Depending on your occupation and work situation, you may be able to obtain disability insurance through an employer sponsored group plan. If you are self employed or a business owner, you can also obtain it on an individual basis. In order to purchase coverage, you can either research online and request disability insurance quotes from a website or agent that you are comfortable working with, or ask friends and family for a recommendation. Whichever way you decide to do it, you should be sure to work with an experienced agent. Do not mistake experience for age or years of being an insurance agent. Many financial professionals have very limited experience with disability insurance, even over a 20 or 30-year career.
So just how important is disability insurance? Look at this example:
A 35-year old person earning an annual income of $50,000 will earn a total of $1.5 million throughout their career if they work to age 65 and does not experience any pay raises. Depending on the individual’s tax bracket, this person will actually take home around $1.2 million after taxes. If they becomes disabled at age 35 and never returns to work again, this person would be losing $1.2 million.
By having disability insurance to protect their income, this would not be the case. Based on a $50,000 income this person qualifies for approximately $2,700 of monthly disability benefit, which is equal to $32,400 per year. During the same 30-year period of time (going to age 65), they would have received at least $972,000 of total disability benefits.
Although it does happen, the previous example is clearly exaggerated. However, even a 2-year disability claim (shorter than the average claim) can create great financial distress. After taxes, this same person earns approximately $80,000 within 2 years of working – a considerable amount. No matter what level of income you earn, if you rely on your income, then a 2-year break from work could cause a considerable hardship to you, your family, lifestyle, finances and savings.
Disability insurance puts guarantees in place so that if the unexpected occurs, you and your family are not exposed to a financial disaster. If you do not already have disability insurance, or are uncertain as to whether you should purchase it or not, be sure to give it considerable thought – not only on how a disability would affect you, but also how it would affect your family and your lifestyle.