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Protect Your Income and Your Future

Insure against disability and serious illness.

You take care to insure your home. But how well have you protected your most valuable asset – your ability to earn an income?

Having the right life insurance is an essential step in risk planning. But statistics prove that during your working years the threat of disability is what should concern you the most.

Think about your friends, family and co-workers. You probably know someone who's been unable to work for an extended period due to serious illness or injury. The Canadian Life and Health Insurance Association reports that on average 1 in 3 people will be disabled for 90 days or more at least once before age 65.

If you are unable to work, everyday bills, not to mention extra medical costs, can eat into your savings, investments, RRSPs, even your home equity. Would you have trouble paying your mortgage or dealing with added financial stress when you need it least?

Disability insurance and critical illness insurance are key plans that protect your income and your assets, helping you overcome difficult circumstances.

The difference between disability and critical illness insurance

While disability and critical illness insurance each help if you can't work, they do so in different ways.

Think of a disability policy as income replacement insurance. It provides regular, monthly payments when you're injured or ill and can't perform the normal duties your work requires. Depending on the policy, disability coverage will typically replace anywhere from 60% to 85% of your income for as long as you're disabled, or until you reach 65.

Even as the incidence of cancer and other serious illnesses is on the rise, so are survival rates. But a stroke or heart attack can be life-changing, requiring funds for ongoing medical treatment, specialized equipment, modifications to your home or just handling everyday expenses.

Instead of regular income, critical illness insurance pays out a one-time lump sum if you're diagnosed with one of the ailments covered in the policy. Some policies will cover two dozen conditions or more. That's in addition to illnesses like cancer, heart attack and stroke which most basic plans include. You can select a benefit level that suits your needs and budget, whether that's $25,000, $50,000, $1 million or higher.

How much protection you'll want will depend on what insurance or resources you already have, what your living expenses and other obligations are like, and what lifestyle compromises you're willing to make. Don't forget about the ongoing need to fund long term goals like your retirement or children's education.

If you feel your own savings are a substitute for insurance, think carefully, and get professional guidance first. Dipping into those funds can be costly.

Don't Let Serious Illness Jeopardize Your Retirement

Funding medical expenses out of your own pocket can cost you more than you think.

Take the story of Jaclyn, a 40-year old diagnosed with a life-threatening condition. To quickly get the specialized care she needs, she plans to visit the U.S. for expensive treatment – $60,000 in Canadian dollars.

To find the money Jaclyn's contemplating a withdrawal from her RRSP. At her 40% marginal tax rate, she must take $100,000 from her RRSP to provide enough cash for her medical bills. If Jaclyn's RRSP continues to return an average 6% annually by the time she's 65, withdrawing that $100,000 could turn out costing nearly $430,000 counting the missed growth. And that would put a significant dent in her retirement dreams.

For less than $60 a month*, or 1% of her $60,000 yearly salary, Jaclyn could have purchased enough critical illness insurance to pay for her medical expenses and keep her retirement savings intact.

*monthly premium of $58.04 based on a $60,000 basic critical illness policy to age 65 for a 40 year-old, female non-smoker.

Is group insurance enough?

Disability and critical illness protection is often provided through employer group insurance. But, should you rely on it alone?

Group policies can leave you with inadequate protection, or in some cases, without coverage at all. Here are four reasons why it can make sense to also have your own individual insurance.

You own the policy, not the employer. In group insurance the employer owns the policy. That means insurers and coverage can change or premiums increased beyond your control. If you leave your job you could be left without adequate coverage. If times get tough or there are too many claims, an employer (or insurer) might cancel the group policy altogether.

An individual policy is a contract between you and the insurance company. Premiums can be fixed for the life of policy and your coverage can't be cancelled unless you agree. If you change jobs you'll still be insured.

You choose how disability is defined. How a policy defines disability can make the difference between having the time to recover and being compelled to re-enter the work force before you're ready.

Group policies typically allow you to remain away from your normal job for a limited period, say one to two years. After that this "own occupation" definition of disability can switch to “any occupation” where unless you can't work at any job, your insurance benefits will cease. You might even be forced into a different line of work, perhaps for less pay. With your own policy you decide the type of coverage that's right for you.

You can top-up your benefit. Although disability plans fix a payment as a percentage of your monthly income, there's generally a cap on the dollar amount. This can leave you short, particularly if you're a high income earner.

For example, say you earn $150,000 a year. A $3,000 monthly cap on a group plan would only cover 24% of your salary, not the 60% or 70% you're hoping for. Enough individual insurance can be purchased to make up the difference. Your advisor can explain which top-up strategies would work best in your situation.

You customize your policy to fit your needs and budget. Group insurance is designed to be "one-size-fits-all", which usually isn't ideal. When you have an individual policy you can choose the features and benefit level you want for the amount you can spend. Cost-of-living adjustments, guaranteed increases in coverage and refund of premiums are examples of options that allow you to customize your policy as you wish. If you're in good health you can qualify for preferred rates.

How disability and critical illness insurance can work together

Because disability and critical illness insurance don't work the same way, it often makes sense to have both. Here's why.

If you're stricken with a serious ailment, having resources on hand to get treatment quickly can make a difference in how fast, and how well, you recover. With a critical illness policy a lump sum payment is possible in as few as 30 days. A disability policy, on the other hand, won't provide cash all at once. Critical illness coverage can fill an important gap by providing the cash necessary to meet your immediate expenses without impacting your savings, and supplement the income you receive from a disability policy.

Disability insurance is generally available only to those earning an income. A critical illness policy can help in special situations where there might not be an income, but still a need to insure.

Say you're a stay-at-home parent. If you become ill, a critical illness policy can make up lost wages if your spouse has to take time away from work, or pay for extra help around the house. It can also provide protection if you take a break from your career, lose your job or similar circumstance where you're not earning money.

An important limitation with critical illness insurance is once the money's gone, it's gone. Providing ongoing income for years, even the rest of your career, is a key reason why disability insurance should be at the foundation of your income protection strategy. What's more, disability insurance offers much broader protection. A disability policy can cover you if you're unable to work due to illness or injury generally. Critical illness insurance will only pay if you are diagnosed with one of the conditions set out in the policy, a more difficult test to satisfy.

How would life look without your income? Life insurance can only protect you part way. No plan is complete without examining how serious injury or illness can put your financial future at risk. That's where disability and critical illness insurance make the difference.

Your BlueShore Financial financial advisor or insurance specialist will sit down with you to discuss all that you need to protect. Then they'll put together a comprehensive insurance plan to best meet the needs of you and your family. Contact them today for full review of your insurance coverage.

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†Insurance services provided by BlueShore Wealth.

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