This is your greatest asset
Ask yourself. What is my greatest asset? Is it your home? Perhaps it’s your car. Maybe it’s the memories you carry with your family and friends. It’s an interesting question and one that is usually answered very quickly, without giving it much thought. The most obvious answer, if you’re one of the lucky ones in Canada, is your home. For some, this may be true. However, for many working Canadians, it’s your ability to earn an income, that is indeed your greatest asset. A more pressing issue, is what provisions do you have in place if you fall ill or are injured, and you’re unable to go to work for a few months, or even years?
Think about it. You leave your house to go to work, come home, make dinner, find some quiet time, watch TV or play with the kids, go out with friends, and then go to sleep. These habits are a huge part of our day to day lives, and working to see a consistent paycheck, is part of that routine. Take a moment to consider how much you can earn in your lifetime.
According to Statistics Canada, the unemployment rate has just touched off a five year low of only 5.8%. That figure is staggering, and it’s the reason why more Canadians should be looking for financial protection, in the event they become injured or sick and are unable to return to work. But, what can you do to protect your income? Aside from dipping into your piggy bank, using your line of credit or re-mortgaging the house, you’ll be happy to know you do have a few options.
Let’s first spin the wheel of chance and look at what the Canada Pension Plan offers. For 2018, the maximum amount payable per month is $1,335.83, but that amount varies and is based on your CPP contributions during your entire working career. But not so fast. This amount is fully taxable as income, so you better be prepared to dip into your savings a bit if you want to maintain your same lifestyle. To qualify, a disability must be both “severe” and “prolonged,” and it must prevent you from being able to work at any job on a regular basis. Severe means that you have a mental or physical disability that regularly stops you from doing any type of substantially gainful work. Prolonged means that your disability is long-term and of indefinite duration or is likely to result in death. The real kicker though is that both the “severe” and “prolonged” criteria must be met simultaneously at the time of application. So, let’s scrap the idea that you’ll be getting anything from CPP and move on to the next option.
Next up, we have good old Employment Insurance. It’s been around for ages, but it’s about as reliable as a car with no battery. First off, EI only pays if you cannot work because of sickness, injury or quarantine, but you would otherwise be available to work. The maximum benefit period is only a short 15 weeks! Say what? Good luck telling that to your bank. If you do qualify, the maximum amount payable for 2018 is just shy of $550 a week, and if you haven’t already guessed it, yes it’s taxable too. As with CPP and EI, it’s important to remember that not everyone receives the maximum benefit, and it will deeply depend on how much money you make per year.
So, I think we’ve established that the government isn’t your friend when it comes to a reliable source of sufficient income, to provide you with peace of mind, in the event you are unable to return to work. However, what about your employer? It’s true; some companies do offer a group benefits plan which can include both a short-term and long-term disability component. There are also many shortfalls with this type of coverage. The benefits can be taxable or non-taxable, depending on who pays the disability insurance premiums, and the amount payable is usually only 67% of your after-tax earnings. That still leaves you and your family with a significant gap in income, to afford to pay the bills and buy food. Most plans also offer no partial disability, meaning if you are only able to work 30 hours per week, instead of the full 40, you’re not eligible to receive a benefit.
Alas, we have saved the best for last. Individually owned disability insurance is by far the best option and should be discussed with a qualified advisor in detail. This type of protection will typically provide you with coverage for about 85% of your after-tax income and comes with a variety of options you can add to enhance the policy, often called riders. These riders include partial disability and benefits that can be payable to age 65 or even your entire life. Another feature that can be added is called a cost of living rider, COLA for short. With this, if you’re on claim, the benefit will increase each year. As housing, food and gas prices go up, so does your monthly benefit. This coverage is also portable, meaning it can follow you if you change jobs. These policies offer comprehensive protection, will cover you in the event of an injury or illness, and your premiums are guaranteed never to increase.
It’s important to note that an individual disability plan is often purchased to complement an existing group insurance plan where coverage is insufficient or as a stand-alone policy for employees or business owners seeking financial protection. If you’d like to know more about what benefits you currently qualify for and how a Karma advisor can help determine your disability insurance needs, contact us today.