Disability Insurance

What Is Disability Insurance?

When it comes to insurance, Canadians simply do not have a good enough understanding of what their needs and options are. Insurance can be both confusing and boring, meaning that you likely have not invested the time to research what coverage makes the most sense for you and your family, or what risks you remain exposed to. While it’s highly likely that you have heard of life insurance, you may not have heard about disability insurance.

I am sure that you realize how important your income is, but have you taken the time to think about how your life would change if you no longer received a paycheque? The purpose of this guide is to help you better understand how you can use disability insurance to protect your income in the event of an injury or illness.

So, what is disability insurance? It is an insurance contract designed to replace a loss of income in the event of an injury or illness. A more suitable name may be income protection or paycheque protection.

While many may think of a disability as a freak accident that caused you to never work again, it is quite the opposite. The most common form of claims are mental health issues such as depression and anxiety. This is closely followed by musculoskeletal issues such as back and neck pain. Many times, these types of disabilities do not prevent you from working altogether, however they may cause you to work part time or at a reduced income. A good income protection plan will pay out while you are still working in these modified roles, to top your income back up.

Your Ability to Earn Income is Likely Your Most Important Asset

Ask yourself, how important is your income to you and your family? If you still depend on your income, you may find that your ability to work is likely the most valuable asset you have.

Based on your annual income, here is how much you could earn cumulatively over your lifetime (by the time you are 65 years old).

*Assuming a 2.5% increase in income each year.

We all know the story about The Goose that Laid the Golden Eggs. The story is about a poor farmer and his wife who had no money for food or clothes. After several days of starvation, the farmer decided to go hunting for food. He came across a goose, who was too small to satisfy his appetite. He brought that goose home and to their surprise, it laid a golden egg. He took that golden egg and sold it for clothes and food. The next day, that same goose laid another golden egg, which in return they used for more food. That goose continued to lay golden eggs every day until the farmer and his wife got greedy and decided to kill the goose, thinking it was full of golden eggs. After they cut open the goose, they learned that they made a mistake as there were no golden eggs inside. The farmer and his wife returned to poverty.

When it comes to insurance, the golden eggs represent your house, your car and other valuable assets you may own. Most of these which you already insure. The goose represents your earning power, which is the financial means to provide for yourself and your family. What’s more important to insure, the goose or the golden egg? I agree, it’s the goose and I sincerely encourage you to invest the time to ensure that your income is adequately protected. The risk of disability is very real, and the financial impact can be devastating.

What happens if you suffer an injury or illness that prevents you from working or earning the same level of income that you currently are accustomed to? It’s this paycheque that allows you to pay for the necessities such as a roof over your head, food on your table and shoes on your feet. It’s also this paycheque that allows you to go out for dinners, enjoy your hobbies and take vacations. For many of us, it’s this paycheque that affords us the lifestyles we live, and we couldn’t imagine having this source of income eliminated from our lives.

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