Most people recognize the need for home insurance, car insurance and even life insurance. But many do not understand the need for disability insurance - an insurance that protects you from losing your income should you become ill or injured.
"The fact is that disability strikes working people far more often than premature death. A 20-year old man is about three times more likely to be disabled for at least 90 days than he is to die before the age of 65. And a 35-year-old woman is about seven times more likely to face disability than death before 65!" Source: "Disability Insurance: Where will the money come from if you're disabled?, Canadian Life and Health Insurance Association
Where will the money come from if you are unable to work?
The Potential Sources of Income
Government benefits - Can you count on them? CPP/QPP only pay for the most severe disabilities. EI only covers employees and only pays a short-term benefit. Workers' Compensation primarily covers work related injury.
Savings - How long will they last? Even a relatively short disability can wipe out years of savings. And if you have to use your RRSP savings to cover your expenses, don't forget you'll have to pay tax on the withdrawals, which will deplete your savings even more.
Liquidation of assets - Even if you have no sentimental attachment to them, will you receive fair market value?
Borrowing - Do your family and friends have the money to spare? Would a bank lend to you if you were not working?
Group long term disability (LTD) insurance - If you're currently eligible, how much are you covered for? Does your plan provide the quality of coverage you need? Will you be covered if you change employers or become self-employed?
Individual disability insurance - A personalized disability insurance that can be tailored to your unique needs.
Can you afford NOT to have personally owned disability insurance?
Have you insured your most critical asset - your income?
B. Kirk McNamee, CFP