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December 2019

What the End of MSP Premiums (Jan 1) May Mean For You

The end of provincial health premiums could leave you with some extra money in your pocket. Here’s how to use it to give your loved ones extra protection if the unexpected happens.

Medical Services PlanMedical services plan (MSP) premiums will end on January 1, 2020. If you’re an employee in BC, this move could save you $450 a year if your yearly income is over $42,000. The elimination of MSP premiums comes on top of a 50% cut the government made in 2018.

If you run a business, you’re likely familiar with the other side of the story: with MSP premiums on their way out, businesses will have to help fill the gap. The province enacted an Employer’s Health Tax (EHT); the amount of the tax varies by a business’ annual payroll.

In light of this change, now is a good time to review your personal health insurance coverage, particularly if the end of MSP premiums has put some extra money in your pocket. You could put those funds toward two tools that could give you extra peace of mind if you’re hurt or ill and can’t work.

Life insurance is critical, but …

When clients consult our wealth protection and insurance specialists, they’re often focused on life insurance. Life insurance is, of course, very important, but be sure not to overlook two other key types of personal insurance.

The first: disability, particularly long-term disability insurance, which generally gives you an income stream for a fixed period (five years, 10 years or even until you turn 65) if you suffer an injury or illness.

The second: upon diagnosis of a life-threatening illness, critical-illness insurance gives you a lump-sum payment you could use to cover costs that don’t fall under the provincial health-care plan—such as chiropractic, massage therapy or prescription drugs. You have the freedom, however, to use these funds however you see fit.

Ignoring personal disability and/or critical-illness coverage can be risky because you’re more likely to sidelined by an illness or injury during your working years than you are to die.

According to Statistics Canada, 20% of Canadians aged 25 to 64 had a disability in 2017, and members of that age group were less likely to be employed: 59%, compared to 80% of those without a disability.

A layoff due to illness can be devastating. Let’s say you’re 45 years old and making $105,000 annually when you’re suddenly no longer able to work. That’s 20 lost years or $2.1 million in foregone income, assuming you would have retired at 65—and that doesn’t include any raises you would have received in that time.

Personal insurance can complement your group plan

It is true that if you’re a full-time employee without personal disability insurance, you have a couple of supports to fall back on. One is the federal Employment Insurance program, but bear in mind that EI sickness benefits only last a maximum of 15 weeks, and the most you can expect to receive is $562 per week.

The other option you may have is disability coverage through your workplace benefit plan. If so, with the end of the year upon us, now is a great time to look at what is and isn’t covered.

For example, some group disability plans may replace 50% of your gross income; however, a personal disability policy could provide more—up to 66⅔%. In such a situation, you could buy personal coverage to top up your personal plan, bringing your combined total up to the 66⅔% limit.

There are two other key points to look for with group benefits: the conditions your disability insurance covers and what’s known as a “non-evidence maximum.”

Let’s start with conditions covered. In some cases, workplace critical-illness plans, for example, are limited to three: heart disease, cancer and stroke. Here again, adding personal coverage can be a plus: they generally cover 23 conditions.

A non-evidence maximum (NEM) means your group disability coverage may provide 66⅔% of your gross income while you’re disabled, for example, but the monthly amount could be capped at a particular dollar amount, say $2,000 a month.

To be eligible to receive the rest, you’d have to prove your good health to the insurance company—a process that may include filling out a questionnaire and submitting blood and urine samples. But if you don’t read the fine print and notice the NEM, you may think you have more coverage than you really do.

That’s different from a personal disability plan, where health tests are part of the application process. If you become disabled, you’ll receive your policy’s full stated monthly benefit once its waiting period has passed. (You choose the length of the waiting period on a personal disability policy—typically 30, 60, 90 or 120 days—when you apply; the longer the timeframe, the lower the premium.)

Self-Employed? Don’t let this myth keep you from getting covered

Self-employed workers have no group coverage, and most don’t pay into the federal EI program, leaving them no safety net beyond personal savings. That makes personal coverage all the more important.

Unfortunately, many don’t visit an advisor to discuss disability or critical-illness insurance, due to a common belief that coverage you buy on your own would be exceedingly expensive—far more than regular employees pay through a group plan.

The good news? That’s generally not the case. Premiums on personal disability plans are usually comparable to those of the disability component of a group benefit plan.

One reason why is because most employees pay the full premium on the disability portion of their group plan on their own anyway, usually as a payroll deduction. That’s because, if the employer paid the premium, the employee would pay tax on the disability payments they receive if they were to become sick or injured.

That’s different from life insurance, where the benefit paid to the beneficiary upon death is usually non-taxable, even if the employer pays the premium.

The takeaway: you likely won’t pay much (or anything) more for disability or critical-illness coverage than a salaried employee does, so don’t let this keep you from talking to an advisor.

A final tip

One last tip: when calculating the amount of coverage you may need, make sure you don’t get caught up on an arbitrary number, like, say, a million dollars. As we saw in our $105,000-a-year salary scenario above, you could require a policy valued much higher to cover your family’s expenses, particularly in an expensive city like Vancouver.

If you’re thinking of adding some peace of mind in case an illness or injury occurs, talk to your BlueShore advisor, who will bring in our Wealth Protection Specialist to work with you to determine the right policy—and amount of coverage—for you.

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