Living Benefits Insurance is all about You!

August 26th, 2011 | Author: Mitch Reynolds

Disability and Critical Illness Insurance is all about YOU!

Protect yourself with disability and critical illness insurance

Disability and critical illness insurance For many Canadians who don’t have a partner or children they think that personal insurance would not benefit them. If all you’re thinking about is life insurance you might be right. Let the bank have the house bank, clean out the bank accounts and let the courts deal with the mess. It doesn’t matter to you any more, and there is no one to leave the money too. But what if you don’t die, but are living with a major, life altering illness or injury?

If life insurance is all about protecting loved ones, living benefits insurance like disability and critical illness insurance is all about YOU. These products are designed to protect your income, lifestyle and access to the the medical support you want and need. These plans can help you pay off debt, continue saving for retirement and maintain the monthly bills while you can’t earn an income. (By the way, these benefits are not just for single people. You can get them too even if you also need life insurance for loved ones.)

This article will examine how both disability and critical illness insurance will protect you from the most common and financial devastating affects of a major illness or injury on your life. Remember, unlike life insurance, you are still alive and needing to be cared for while disabled or ill. Your standard cost of living might even go up with additional health care costs that are not covered by your provincial government.

Disability and critical illness insurance is all about protecting you while you are still alive.

Disability Insurance Guarantees Cash Flow

If you’re disabled from an illness or injury and can’t earn an income, all cash flow stops. Unfortunately the monthly bills and debt payments don’t. Many Canadians (about 45% of all workers) don’t have either group disability insurance or personal coverage. If anything were to happen they would be totally exposed to financial loss. This can be covered with an individual disability insurance plan.

Let’s look at the cost of covering your income. We can examine both men and women, since there is a significant price difference for disability insurance between the two.

40 year old man, non-smoker, earning $80,000 per year.

Let’s assume this man is doing a standard desk job. The type of occupation you do will affect your cost of disability insurance (risky professions pay more). Here is how the cost would break down:

Monthly premium of $126.02
Annual premium of $1,512.24
Monthly benefit when on claim of $4,300

This works out to 1.9% of his earned income to guarantee a tax free monthly income of $4,300.

40 year old woman, non-smoker, earning $80,000 per year

Very similar to the case above, but women tend to pay more than men. This is why I wanted to break the analysis into two parts. Here is how the cost would break down:

Monthly premium of $213.37
Annual premium of $2,560.44
Monthly benefit when on claim of $4,300

This works out to 3.2% of her earned income to guarantee a tax free monthly income of $4,300.

So, what are the risks? When paying for disability insurance what is the potential you will need the coverage? Based omn statistics gathered from Manulife, Canada’s largest insurance company, here are the statistical chances that the man or woman might claim before age 65:

Man: 34.7%
Woman: 37.1%

Critical Illness Insurance Will Give You A Lump Sum Cheque

Critical illness insurance covers things like cancer, heart attack, stroke, bypass surgery, MS, Parkinsons, and many more major illnesses and injuries. These life altering events, if you survive the initial diagnosis, could cause major financial costs. The first things people do is liquidate their RRSPs or refinance their homes for money when they need it. Why destroy your retirement plan or take on more debt when you are faced with a critical illness?

If you have a critical illness insurance policy you wouldn’t have to make these tough choices. Critical illness insurance pays you a lump sum, tax free benefit 30 days after diagnosis of a life altering medical event. You can use this money any way you chose – pay off debts, replace lost income, access alternative medical care, or take a once in a lifetime vacation. What ever you chose.

Let’s look at the same 40 year old man and woman above. Each earning $80,000 per year and looking for $150,000 of critical illness coverage. A term 20 policy would give them both a level price until age 60, very near the end of their working years. After 60 they decide they no longer need the critical illness insurance as the house will be paid off, children off on their own, and significant savings in the bank.

Here is how the monthly cost for each of them would break down:

For the man: monthly premium $97.07 which works out to 1.5% of annual income to provide $150,000 in case of a critical illness.
For the woman: monthly premium $91.94 which works out to 1.4% of annual income to provide $150,000 in case of a critical illness.

Again, what are the chances of one of the 24 major illnesses or injuries on the critical illness insurance list happening to you before age 65? Here are the chances for both:

Man: 27.8%
Woman: 19.8%

Roll the dice or protect yourself from financial risk?

The big question is should you role the dice with your future or buy an insurance policy that will give you risk protection. Here is a simple risk vs. return calculation to see if paying these premiums would make sense.

Let’s assume the alternative is to buy both coverages (diusability and critical illness insurance) OR neither of them. This will keep the analysis simple. Here are the basic assumptions:

time off work from disability or critical illness is 3 years
annual income is $80,000
average income tax rate is 30%
after tax earning is $56,000
critical illness benefit is $150,000
monthly disability benefit is $4,300 tax free
Percentage chance of either disability or critical illness for the man: 62.5% and the woman: 56.1%

If the man didn’t buy the disability and critical illness insurance and instead invested the money into his RRSP that grew at 6% per year, after 20 years he would have saved $102,340. For the woman the same calculation would be $140,060.

If either of them was to suffer an illness or injury that kept them off work for 3 years, the before tax loss would be $240,000 in gross earning, and about $168,000 in after tax disposable cash flow. If they had disability and critical illness insurance they would both have $150,000 in critical illness benefit, tax free and lump sum, and/or they would receive a total of $154,800 from their disability insurance payments. There is a very good chance you would get both benefits payout if you had something like cancer and took time off work.

Life Guard Insurance can help protect you with disability and critical illness insurance

If after looking at these numbers you feel it would make sense to have protection, we would love to help you. Feel free to contact Life Guard Insurance to speak with a qualified insurance specialist who can show you how a disability and/or critical illness insurance policy can benefit you.

The article was written by Mitch Reynolds+. If you found this article interesting or it made you think, please feel free to share your comments below. Liking us on Facebook, giving us a +1 on Google or Tweeting this article about disability and critical illness insurance would also be very much appreciated.