Protect your income before a disability sidelines your financial goals

Reality check

Did you know that in 2001 there were over two million Canadians of working age who are disabled? And physical injury isn’t the only cause. Among office workers, absences from nervous disorders including stress- triggered conditions have become the leading cause of disability in Canada today. 1

While most of us can relate to the negative effects that stress has on our health, many Canadians know little about how to protect their income should they become disabled. Most people haven’t taken the time to do the math to determine if the group disability benefits offered by their employer will shoulder them throughthe rough times, or whether government benefits (if they qualify) will be sufficient to help them cope while they’re dealing with an unexpected “time out.”

Unfortunately, the common result is that, when people become injured or disabled, they may need to use their retirement savings, sell off assets and/or accept a significantly lower standard of living to manage the costs associated with a disability.

DISABILITY RATES INCREASE WITH AGE

TAKING A HIT WITHOUT PROTECTION HURTS

Darren, a 40-year old account manager at a car dealership, is like many typical Canadians.

He has been married for 15 years to his high school sweetheart, Trisha, and has three young children. He is an avid sports fan and loves to play league hockey a couple times a week.

The talk in the dressing room lately has been about their teammate, Wade, who is recovering from a serious head and neck injury he took on the boards last month. For Wade and his family, the immediate future is not looking too bright. Word is that the doctors told him it could take months to recover and it would perhaps be even longer before he could return to work.

As Wade is his family’s sole income earner, a few members of the team wondered how his family will cope financially. Apparently, his employer’s disability benefits will only cover 50 per cent of his monthly income and it will be six months before the benefit kicks in. In the meantime, his family will have to cover the mortgage and other monthly expenses, and perhaps even cut back on the extra curricular activities that the boys enjoy. Wade’s only hope is to get back on his feet quickly because his group disability benefits will only last for two years.

As he walked to his car after practice one night, Darren asked his teammate Brian, an advisor, to set up an appointment for him and his wife. Darren wanted to ensure that he and Trisha have a plan in place to protect their family income should one or both of them find themselves in a similar situation to his friend Wade. Darren always assumed that his benefits from work would cover him in the event of an injury, but rather than taking a “wait-and-see” approach, he wanted to ensure that their financial goals were protected with the best insurance plan they could afford.

Before their meeting, Brian sent an e-mail to Darren and Trisha that outlined some important points they needed to think through about long-term disability coverage:

1. How will you qualify for disability benefits?

Generally, group long-term disability (LTD) plans cover total disabilities and use a two-year “regular occupation” definition of disability. This means that after two years on a claim, a much stricter definition of disability could be applied.

2. Are there exclusions or limitations for certain types of medical disorders, activities outside of work, or pre-existing conditions? Are stress- related disabilities included in your group plan? Are injuries sustained through potentially risky activities, such as skiing, horseback riding, or hockey included? Are you required to participate in vocational rehabilitation in order to continue to receive benefits?

3. How much will the disability benefits pay? Employer-sponsored programs may not cover all sources of income such as annual bonuses and commissions, and may have overall maximums that cap benefits well below the pre-disability income level. The major forms of government disability benefits are: Employment Insurance, Workers’ Compensation and the Canada/Quebec Pension Plan. All three have eligibility and benefit limitations.

4. What happens when you leave your job? Typically, long-term disability benefits terminate when your job does, leaving you with no ability to convert to an individual disability insurance policy.

5. When do you expect to retire? The further out in the future this date is, the longer your financial well- being is exposed to the risk of disability.

6. What percentage of your income comes from your investments? The lower this percentage, the more dependent you are on your ability to work and earn a living.

7. How long could you maintain your current standard of living on savings alone? The shorter this period, the more vulnerable you will be if disability strikes. Also keep in mind that withdrawals from an RRSP are subject to income tax.

8. How much money do you think you could borrow if you became disabled? From a lender’s perspective, if you aren’t working, will they want to loan you money?

9. If you were to become disabled and unable to work, would your spouse be able to generate enough income to make up the shortfall? Even when this is possible (by working overtime for example) many spouses may instead want to reduce the amount of time at work to be able to help their partner or take care of other family needs.

10. To what degree do your children, spouse or parents depend on you financially? Something to consider: if you become disabled, your dependants will still need financial support.

At their meeting, Brian began by reviewing Darren’s

current disability insurance policy from his place of employment.

In Darren’s case, the quality of his group LTD coverage was good, but only his base salary of $60,000 was protected. His estimated $15,000 in sales commissions, however, would be excluded in his employer’s LTD plan, meaning he would only receive a non-taxable monthly benefit of $2,500, or 50 per cent of his current monthly income.

Darren quickly realized that without additional coverage his family would struggle. He didn’t want his family’s standard of living to suffer as a result of financial hardship. And with Trisha working at home as a graphic designer, she couldn’t turn to employer-sponsored disability benefits either.

Because Darren was the main income earner, Brian recommended a couple of options to meet his family’s needs. Brian suggested cost-effective disability insurance protection to complement the group coverage he already had. In addition, he suggested adding a rider to include partial disability benefits. For Trisha, he suggested a basic income protection plan, specifically designed for home-based workers.

If Darren or Trisha should ever find themselves shut out by a disabling injury or illness, the additional insurance coverage would enable them to:

Make mortgage and car loan payments

Pay for necessary living expenses such as utilities, groceries and clothing

Preserve their retirement savings

Help ensure that Trisha’s business survives

With this solution in their back pocket, Darren and Trisha feel a lot more confident about protecting their income and way of life. For about $212 a month 2 , Darren can once again enjoy that weekly hockey game knowing that Trisha isn’t worrying as much about him every time he puts on his skates.

Your advisor can show you how you can do the same.

Discuss with our insurance advisor your particular health conditions , on our tollfree number 1-866-517-0606. You might also like to fill in free obligation quote for click here , we will contact you soon.

Protect your income before a disability sidelines your financial goals

Accident and Disability Insurance, Manulife Insurance