How Canadians can Protect their most valuable asset
Today we’re going to be talking about how you can protect your most valuable asset – Your ability to make an income.
The first thing we need to talk about is why your income, or your ability to make an income, is your most valuable asset.
For starters your cash flow or your income is the number one thing that is relevant for your financial life. For most people your income comes from some sort of work, either for themselves, or at a job for somebody else.
Keeping your income coming in at all times allows you to pay for everyday expenses without needing to go into your savings. So, you’re able to build the savings and not touch it.
This is why keeping an income going is crucial to a strong financial life and future.
However, all sorts of things can go wrong, and that is where protecting your income comes in.
What is Disability Insurance?
There are two main ways to protect your income, Disability and Critical Illness Insurance.
Disability Insurance pays out a monthly benefit if you cannot work because you're sick or injured or for whatever reason.
It doesn’t have to be related to you getting injured at work. A lot of people think “Oh, I have workers compensation if I’m injured at work, I don’t need disability”.
But what we’re talking about it doesn’t matter where the injury or accident happened. It could be a car accident, or anything.
There’s different types of disability insurance, generally we recommend our clients to get the highest level they can get, and this is determined by occupation type.
The levels are actually called own occupation, regular occupation, and any occupation.
What does own occupation mean? It means if you cannot do exactly the job that you were doing before and get paid the same amount that you were paid before the disability insurance will pay you.
For example, if you’re a brain surgeon and something happens where you can no longer be a brain surgeon, but you could still be a general doctor, or a lecturer at a university.
If you have own occupation disability coverage it would pay you as long as you couldn’t be a brain surgeon, even if you could still work as a general doctor, or a lecturer.
Own Occupation coverage is often restricted to certain classes of occupation, usually high education, high income, high responsibility, like a lawyer, doctor, or engineer
Most people usually can get the next version which is regular occupation insurance, and it’s usually what is used in group benefits plans.
Regular occupation is if you can’t do something similar to what you were doing and at a similar pay the insurance company is going to pay you unless you can go do that
Again, if you were a surgeon, but you could go be a regular doctor and earn a similar income, the insurance company would say please go do that, and help you retrain and transition.
The last one is called any occupation and what it is, is if you can do anything, the insurance company would want you to do that.
Say something happened and now you cannot be a plumber, but you could fold envelopes, or be a greeter at a store, then the insurance company would say go get that job.
It doesn’t matter if it doesn’t pay as much, or your not using your skills or ticket, just if you can do anything, you should go do that.
Those are the three kinds of levels. Again, we usually suggest you get the highest level available, that protects you the best
We also recommend that you get it for the longest-term period possible.
Some of these policies will pay you for 2-5 years, in fact most coverage through work isn’t more than 2 years.
What we like to do is to set these up for people until age 65, which in Canada is your traditional retirement age.
What we also do for you is cherry pick which insurance company will be the best to work with for your occupation.
Because we work with all the different insurance companies we know the types of business each one wants, and where we can get you the best deals for your occupation.
For example, all dentists generally have a disability policy with the same company because that company offers dentists a discount, and has a plan designed around a dentists life.
And there's other companies that cater to lawyers, or truck drivers, or different sorts of occupations
That’s where working with somebody like us will help get the best insurance for you and your scenario.
What is Critical Illness Insurance?
Next up is Critical Illness insurance. Critical Illness is one of the most important types of insurance people should have.
It pays out a tax free lump sum payment if you contract one of 25 named big illnesses.
The big ones are cancer, stroke, heart attack, coronary bypass surgery, the list goes on but you don’t want to get any of these things. But if you do, you absolutely will appreciate having critical illness insurance set up.
We’ve paid out a lot of claims on critical illness insurance at ages you wouldn’t expect, a 36-year-old with leukemia, or a 38-year-old with a heart attack. We also get claims for people in their 50s but it’s the younger ones that really put everything into perspective with Critical Illness Insurance.
You do have options to adjust your term length with Critical Illness insurance, whether it’s 10, or 20 years, until age 65, or for life.
You also have the option to get whatever amount you want so it’s not limited by your actual income like disability Insurance.
You can get $100K, $200K, $500K, or a million as long as you pay the premiums that what you get.
People often ask how do you decide how much you want, well there's no right answer.
Whatever makes you feel secure and, whatever makes you sleep well at night.
In Canada we have a medical system that pays for some things, but not everything, and you know cancer can cost you anywhere from $100-300,000 depending on how long you have to fight it for.
While you're taking time to recover, you have to take time off work, but your mortgage, and expenses keep going, and you still need money coming in.
You can’t predict these illnesses but statistically chances are they are going to happen to most people.
By taking out insurance now, if you do get sick you have the money to help pay for things.
What if I have Benefits through work?
Now a lot of people have group benefits plan through work, and it’ll usually have some level of disability insurance, and it might even have a bit of critical illness insurance too.
These people often wonder why they even need individual coverage outside of their group benefits, and the truth is there's lots of reasons.
Firstly, if you have disability through work you're probably paying for disability anyways through some sort of deduction off your paycheque, but your getting what they give you, instead of what you want.
Most disability benefits through work pay out for 2 years, but they usually stop after.
Another reason you might want your own, is so that you don’t have this two year limitation.
Plus it’s pretty simple to opt out disability portion of your work plan because it is a separate piece that you pay for.
And an added benefit of having your own disability is that you aren't tied to your employer.
Say you leave your job, and you lose those benefits, then when you get another job, you have to wait 90 days for your new benefits to kick in, which leaves you uninsured for a while.
The cost difference isn’t that much so it will probably cost you very similar to what you pay through your work plan.
You can also make your private coverage and work plan work together. What we can do is set up an independent disability plan that will kick in when you group benefits plan stops.
So often times this is 2 years plus one day.
This way your covered through work, and if anything, major happens that keeps you from working for more than two years.
One benefit of adjusting when you disability plan kicks in, is that it often costs a lot less. A plan that kicks in after two years will cost a lot less than a plan that kicks in after 30 days.
As for Critical Illness Insurance it is sometimes included in a group benefits plan but it’s usually a very minimal amount like $25,000 or $50,000 or even less.
That’s why we recommend people get additional coverage, because it’s kind of a 50/50 if you’ll contract a major illness between the ages of 18-65.
So, it’s also 50/50 as to whether you’ll use critical illness insurance sometime in your life.
We also recommend you set this up earlier as it it usually cheaper to get the younger you are. Plus you can always up your coverage later.
Contact Us
At Safe Pacific Financial, we specialize in helping Canadian business owners, incorporated professionals, and investors structure life insurance for maximum wealth protection, tax savings, and business growth.
If you would like to discuss whole life insurance or investments, we’re happy to chat and see if we can be a good fit to work with you. Fill out our contact form and we will get back to you within 24 hours on business days.
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