Critical Illness Insurance & Disability Insurance

These 2 products help to complete a full Risk Management program for your family. They have many moving parts, & you may have these coverages through work. Speaking with a Your FIRM advisor is highly recommended to ensure these are done right. These policies can be stand alone or can be included in your life insurance policy. If you are interested in speaking with a Your FIRM advisor, fill out the form on our Contact page and we will get back to you. Here is some info about each one:

Critical Illness Insurance

First off, Critical Illness insurance is a lump sum benefit paid out upon the diagnoses of one of the covered conditions. Most companies cover between 25 – 30 conditions. The main 5 being: Cancer, Heart Attack, Stroke, Coronary Artery Bypass Surgery & MS. These 5 conditions make up 95% of Critical Illness claims. The other 5% is made up of the other covered conditions (things like, coma, severe burns, loss of independent existence, deafness, blindness, bacterial meningitis, etc). Cancer makes up about 60% of claims on its own! Not surprising since 1 in 2 people will have Cancer at some point in their lives.

Critical Illness is a “living benefit”. Meaning it is for you. Generally you should have 1 year salary in Critical Illness coverage. In fact, the most sold coverage is 100k. So what is it for? You can use it for whatever you want or need. Some common examples: Medication not covered by your group plan or even by government Medicare, maybe you need to modify your home or vehicle, maybe you want a 2nd opinion on treatment by the Mayo Clinic. Perhaps there is a surgery they do in India that they don’t do here; bucket list, take your kids to Disneyworld or even cover off your spouse’s salary so he/she can stay home and take care of you.

Those are all good reasons. From a planning perspective, Advisors want you to have this coverage for yet, another reason: to protect your financial plan. Nothing destroys your retirement plan like not being able to work for a year and due to unexpected costs, having to either deplete your savings OR rack up some debts. Looking back in history, this is the reason why Critical Illness coverage was invented in the first place. As medical advancements started saving more lives, the survivors had a similar complaint. While being grateful they were alive, they were financially devastated. Solution: an influx of cash when you need it most.

HOUSE INSURANCE

1 OUT OF 2786 HOUSES WILL CATCH FIRE

CAR INSURANCE

1 OUT OF 1647 WILL HAVE ACCIDENTS OVER $3,000

LIFE INSURANCE

1 OUT OF 143 WILL DIE BEFORE AGE 65

DISABILITY INSURANCE

1 OUT OF 4 WILL BECOME DISABLED BEFORE AGE 65

CRITICAL ILLNESS INSURANCE

1 OUT OF 3 WILL BE DIAGNOSED WITH A CRITICAL ILLNESS BEFORE AGE 65

Disability Insurance

Sometimes called Income Replacement insurance. It exists to replace your income when you are still alive, but due to an accident or illness, can no longer work and therefore cannot earn an income. It is different than life insurance as the benefit is for you, not those you leave behind. This is called a “living benefit”.

You probably have some Disability coverage already. For example, some workplaces are required to carry WCB – Workers Compensation Board, if you are in an accident driving, you may be covered by your auto insurance.

There is EI – Employment Insurance, then another is through your group plan at work, you may have Short term and/or Long term Disability coverage. The problem with WCB & your auto insurance is that they only cover you in certain situations. Ex. at work, or only while you are driving. EI is only good for a short period of time. If you have Short term and/or long term Disability at work, that may be all you need. If you are not sure, you will need to check with your HR department at work to get clarification.

Self-employed persons really need to have Disability insurance, because if you can’t work, the income stops. RMT’s, Commissioned Salespeople, Real Estate agents, Owner/Operator Truck Drivers, Trades people etc.

No matter how you earn your income, you need to make sure it continues if you can no longer work. The sooner you get it, the less expensive it will be. Additionally, if you have injuries or disabilities in your past, these will likely get excluded in a new Disability policy. So it is vital to get the policy in place early so it won’t have any exclusions.

If you are still on the fence about Disability Insurance, consider this example

You are looking for a new job. You have 2 interviews today and receive 2 offers:

Job A Job B
Salary 100,000 98,000

So far, all things being equal, the choice is obvious. However, you inquire about benefits and you find out there is a major difference if you were to become disabled:

Salary if Disabled: 0 65,000 (tax free)

Think about that. If you were paid 100k, what would you take home after tax? Probably pretty close to 65k. So at Job B, if you are unable to work, your income would continue pretty well the same, whereas in Job A, you are out of luck.

So whether you are an employee or self-employed, Job B looks pretty good. So now you need to make the responsible/intelligent choice. Consider the 2k salary difference, the amount you would pay for your private disability policy. You have to make the decision to move from Job A to Job B. All you have to do is apply and then pay for your disability policy.

Here is how it works, first off, there is no point in applying and paying for disability insurance that will provide a benefit that is more than you earn. Insurable need, comes into play. You should make less on Disability than you would earn working. There should be some motivation to return to the workforce. At time of claim, part of the claim process is to determine your income over the last couple years, so if you have “over-bought” coverage, it won’t pay out anyway.

There will be a waiting period also called an elimination period. This is how long you have to be disabled, before benefits will start to pay out. This could be 0day, 14day, 30day, 60day, 90day, 119day, 180day etc etc. The sooner the payments start, the more the policy costs. To keep costs down, you could choose a 90 day or 119 day, but make sure you have 3-6 months of income put aside to get you through.

There will be a benefit period. This is how long they will pay benefits to you. 2 years, 5 years, until age 65 etc. The longer the benefit period, the more the policy will cost. We usually recommend 5 years or age 65.

Another thing to consider is something called own occupation. This is how long they will pay you, if you can no longer do your job, vs. can you do any job.

Here is an example to help explain all this:
Construction worker, Policy purchased is: 5k of monthly benefit, 90day elimination period, benefit age 65, own occupation 5 years.

So Mr. Construction worker is diagnosed with severe MS and can no longer work. After 90 days of being disabled, his policy will start paying him 5k per month. After 5 years, it is determined that his MS is so severe that not only can he no longer do construction, but he cannot do any job, so the policy will continue to pay him until age 65.

Different Scenario/same policy:
Mr. Construction worker has an accident at work and severs his spine. He is now confined to a wheelchair. His policy will pay him 5k per month (after 90 days) for the next 5 years. During that time, he earns his CPA designation and re-enters the work force. The policy would pay him for 5 years at which point he is required to do another job. It would pay him for 5 years or until he returns to the workforce. So in this case, if he is a CPA after 4 years and then gets a job, then his benefit would end at that point.

Disability has lots of other options and riders. Working with a Your FIRM advisor is highly recommended so you can put a policy in place that not only fits your budget, but also provides the benefits you want/need. Every insurance company has some of the same and some different options as well.

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