Insuring Your Greatest Asset with Disability Insurance
What’s your greatest asset? Home and vehicles are among the most common answers we hear, yet your ‘earning power' has the biggest impact on your financial health. Your home and vehicles are insured, but what about your earning power?
Take a few minutes to get a little perspective on the enormity of your earning power and why and how to protect it.
Perspective
Most of your existing and future assets depend on your ability to earn an income, making your earning power precious, and the most valuable asset you have. All summed, do you know what your earning power is worth?
Try this calculator to get some perspective or contact our office to learn more.
The calculator fine print shows gross earnings during your working career and calculates their present value using an after-tax return of 4%.
Probabilities
6.2 million Canadians over age 15 live with one or more disabilities
In 2017, one in five (22%) of the Canadian population aged 15 years and over – or about 6.2 million individuals – had one or more disabilities.
There are a handful of prevalent disability types
Disabilities related to pain (15%), flexibility (10%), mobility (10%) and mental health (7%) were the most common among Canadians aged 15 years and over.
Instances of disability increase with age
Persons with disabilities are less likely to be employed
Among those aged 25 to 64 years, persons with disabilities were less likely to be employed (59%) than those without disabilities (80%). As the level of severity increased, the likelihood of being employed decreased. Among individuals aged 25 to 64 years, 76% of those with mild disabilities were employed, whereas 31% of those with very severe disabilities were employed.
References
¹ Statistics Canada - Survey on Disabilty - 2017
Planning
Think of your earning power as the foundation that supports the framework of your finances. Your financial framework includes your current and future financial needs, goals, and plans.
The sum total of your monthly income over time is significant. If you lost your earning power, what would be the foundation for your financial framework?
Here are some commonly held ideas.
Personal Savings
Replacing future income requires significant savings. Since disability can strike at any time, you can’t predict how much or how long you have to save. Any savings you do have could be wiped out quickly by a disability.
Retirement Savings
If your registered retirement funds are accessible, they’d be subject to withholding tax¹ and fully taxable as income in the year withdrawn. Could you re-coup your retirement savings once they’ve been withdrawn?
Spouse or Partner’s Income
Financial needs, lifestyles, goals and plans are almost always established on the current total household income. Changes to the foundation can have a devastating effect on the family’s financial framework.
Selling Assets
Most people’s assets are integral to their financial framework or at least impactful to their lifestyles, and selling yours may be less then desirable, especially during a disability. And, without control over timing, market prices, and demand, the success of this strategy is uncertain at best.
Borrowing
Qualifying for lending from a financial institution is next to impossible when earning power is hindered by a disability. And borrowing from loved ones can be very hard on relationships when the ability to repay is unpredictable.
Goodwill
The kindness of strangers doesn’t go as far as you’d think. According to fundera.com, in 2021, the average crowd funding campaign raised a total of $824.
Employment Insurance
As of 2022 — E.I. sickness benefits² are only paid for up to 15 weeks, calculated as 55% of your average weekly insurable earnings, up to a maximum of $638 per week – for a total maximum benefit of $9,570 over 15 weeks.
Workers Compensation (WSIB)
If your employer participates in WSIB, you’re only covered if you’re injured on the job or have a sickness that’s directly related to your job.
(In addition, Toronto Star reports that 90% of chronic mental stress claims are denied by WSIB³)
Canada Pension Plan (CPP)
To qualify, you must be under 65, meet the minimum contribution requirements, have severe and prolonged disability, and be unable to work at ANY occupation.
In 2022, the CPP disability benefit⁴, which is subject to contribution levels, is a minimum monthly benefit of $524.64/month and a maximum monthly benefit of $1,457.45/month ($17,489.40/year).
Not for residents of Quebec
Quebec Pension Plan (QPP)
To qualify, you must be under 65, meet the minimum contribution requirements, have severe and prolonged disability, and be unable to work at ANY occupation.
In 2022, the QPP disability benefit⁵, which is subject to contribution levels was a minimum monthly benefit of $524.61/month and the maximum monthly benefit of $1,463.83/month ($17,565.96/year).
Only for residents of Quebec
Group disability insurance
Group disability insurance through an employer can be a good first layer of protection, however, it typically has a strict definition of disability to qualify for long term benefits. Additionally, the premium can go up as frequently as annually, and you can’t take the coverage with you if you leave your employer. Disability insurance is typically limited to cover between 60% and 70% of your income
Personal disability insurance
Whether or not you have group disability insurance through your employer, individual insurance can build a firm foundation for your financial framework.
If you already have group disability insurance – personal disability insurance can be used as an added layer of protection in case a disability doesn’t qualify for benefits under your group plan, or as a top up so that you can receive a higher monthly benefit in the event of disability, closer to your current take-home pay.
If you don’t have any group disability insurance – consider a flexible personal disability insurance plan that can pay full or partial benefits and cover a wider range of circumstances than group disability insurance, one that also offers optional features like shorter wait times, longer benefit periods, return of premiums and annually increasing monthly benefits. Once it’s purchased, your premiums are guaranteed, and you can keep your plan even if you change employers.
References
¹ Government of Canada website – Tax Rates on Withdrawals - Date modified: 2021-12-17
² Government of Canada website – E.I. Sickness Benefits - Date modified: 2021-12-31
³ Toronto Star – Workers’ compensation board denies over 90 per cent of chronic mental stress claims, audit shows - 2018-12-04
⁴ Government of Canada website – Canada Pension Plan disability benefits - Date modified: 2022-02-04
⁵ Retraite Québec website – The Québec Pension Plan at a glance - 2022
Protection
Your power to earn an income is your greatest asset and has helped you build a firm foundation to support your current and future financial needs, goals and plans.
As you’ve seen, a disability is a serious risk to your earning power—a risk you can insure against.
We can help you assess your current situation and ensure you have the coverage you need to support your financial framework now and into the future.