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Disability Insurance
Why Disability Insurance?
Of all the things that a person can experience in their lifetime, the loss of household income, or a large drop in household income for a two-income family can be financially and emotionally devastating. After the experience of handling claims, one theme that keeps repeating itself is that for many, the prospects of dealing with a prolonged disability can be worse than the prospect of dying, when it boils down to the financial aspects of the event. Many folks have life insurance. They have a general idea that if they were to die, the family debts will be paid off, there would be money left over to replace the income that was lost, etc. However, many of those folks lose sleep over the prospects of what would happen to their family or their business if they were to suffer a debilitating injury or illness.
The Hard Facts on Disability: Are You One of the Three?
Here is a fact: According to Canadian Life and Health Insurance Association (CLHIA), one out of every three working Canadians will suffer a disability lasting more than three months before the age of 65. Are you prepared for this possibility?
It is easier to buy disability insurance than ever before. Product development in recent years has advanced the types of coverage being offered. Even if you are not in perfect health, or you have made a claim in the past, it is possible to access disability insurance. New guaranteed issued disability insurance products are very reasonably priced and cover even the worst-case scenarios of prolonged disabilities.
The more advanced types of coverage can provide a return of a portion of your premiums if you do not make a claim or the amount of premiums paid are less than the amount of claims made during the life of the policy.
Let’s look at scenarios:
Ethel’s Disability Insurance
Ethel had worked in the family business for 30-plus years. She had good staff and a thriving business. Ethel had long since purchased life insurance to fund the buy-sell agreement between herself and her brother, Tommy. This meant that if one of them were to pass away, there was a logical and systematic plan to deal with the acquisition of the shares inherited by the family members left behind so the control of the company would never flow outside of the original founders of the company, Ethel and Terry.
During a review a few years ago, their Front Gate Financial Group advisor congratulated them for making the plans to deal with what happened if one of them were to die, but he continued to say the next most obvious question to ask is, “If you believe in insurance because you might die prematurely, do you believe in insurance to deal with the possibility of a disability?” The business partners kind of looked at each other for a few seconds and said, “Well, we think so.” After a five-minute discussion, it became obvious to the advisor, their previous ideas were not absolutely formalized and their flimsy plan was full of holes. The advisor recommended disability insurance as a way to help relieve the stress that would be involved if one of them were to become disabled. A few short years later, Ethel was diagnosed with cancer. After the waiting period that she selected for her policy, Ethel began receiving tax-free disability insurance benefits that replaced her income. By not needing to pay Ethel’s wages, Terry was able to take the funds that paid Ethel to hire an interim replacement while she was out of the office, fighting for her life.
Ethel is now through with her cancer treatments and her doctors tell her that the prognosis is good. They believe that they got all of the cancer and Ethel is soon going to start going back to work a couple of days a week until her strength picks up. The disability insurance payments allowed Ethel to focus on her health during this trying time and enjoy some quality time with her family, as opposed to worrying about the business. She knew that Terry was more than capable of keeping things rolling in her absence, but it provided both of them with peace of mind that he would not be burdened trying to make enough revenue for both families while she was going to be away from the office.
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