Disability Insurance – Why Do You Need it: Expert Opinions

A number of industry experts and thought leaders weigh in on why disability insurance is important for Canadians. Click on the thought leader’s picture below to explore their perspective or click here to see the summary.

Cory Budovitch: “A machine that would produce 10 million over the next 25 years”

Cory Budovitch – Owner of Budovitch Legacy Planners Inc

Many people feel like their home, marketable securities, or business is their greatest asset. If you think about it logically, your ability to earn income is your greatest asset. For example, a 40-year-old making $350,000 a year times 25 years is $8,750,000 in potential earnings (most people’s income increases over their career). When you account for inflation, that’s well over $10 million in earnings. If you had some sort of machine that produced 10 million over the next 25 years, how likely would you be to insure it? Would you insure some of the income? All of it? What kind of insurance would you use to insure it? Bare minimum? The best coverage you could get? Does it make sense to use 1%-2% of your income to insure the other 98%?

Terri Botosan: “It is critical protection for any self-employed individual”

Terri Botosan, Employee Benefits, Retirement and Life, HUB International

Disability insurance can be a bit of a mystery to some. I believe it is the least understood protection that we offer.

It holds such an important place in many insurance portfolios. It is critical protection for any self-employed individual.  It doesn’t stop there though. Many employees lack a strong understanding of the short- and long-term disability plans that they have through the employee benefits offered by their employer. They hear the words “disability benefits” and think that they are fully protected. There can be income gaps in those plans, limited time periods for protection or other issues that might end the protection before the need has expired.

I believe strongly in the value of advice and there are so many great advisors that are able to help Canadians. Getting advice around your disability plan is a decision that you will never regret.

Neil Paton: “Disability insurance continues to be one of the most misunderstood benefits”

Neil Paton, Partner, President and Chief Executive Officer at The Edge Benefits

I find it interesting that over my 33 years in the disability income business in Canada, the problems – or what I’d prefer to phrase as the opportunities – remain remarkably similar.

Although the vast majority of life and health advisors continue to focus on life insurance, and more recently critical illness insurance, there remains a very small minority of advisors who successfully incorporate disability insurance into their routine.

I’ll spare you the details on all of the reasons that I have heard over the years which may be the cause of this, but the fact remains that disability insurance continues to be one of the most misunderstood and overlooked benefits in our industry. And to make matters worse, fewer and fewer Canadians today have access to a traditional benefit plan that includes disability insurance because they are either self-employed, or work with a small employer who may not recognize that coverage is available or affordable.

So why do I remain optimistic?

My optimism comes from those advisors that take the time to help their clients understand that financial security cannot happen without income protection, and that income protection cannot happen without the combination of life insurance, critical illness coverage and disability income.

These advisors are the ones that will differentiate themselves from those who do not make this extra effort, and as a result will see their businesses grow significantly.

In addition, with the emergence of much needed simplified life, living benefit, and small group products in the Canadian marketplace, and new technologies that now allow them to remotely and electronically reach, educate, and insure these underserved Canadians, their competitive advantage will continue to grow.

So why is disability insurance important?

Because disability insurance is a critical component of income protection. Income protection is a critical component of financial security, and financial security is a critical component of peace of mind. Boom.

Ami Maishlish: “Don’t leave yourself and your family exposed without it.”

Ami Maishlish – President, CompuOffice Software Inc.

In a nutshell, a health-related crisis such as a disability or a critical illness event reduces or eliminates income while concurrently increasing costs and expenses.  It’s a double whammy that has the potential to knock out the best financial and retirement plans as well as increase the probability of an ailment and disability among the dependents of the disabled person.

Stress, including financial worries, is a well-documented cause of physical ailments as well as being a catalyst to aggravate physical ailments and a hindrance to recovery.

The measures taken to curb the spread of the Covid-19 pandemic have caused a widespread and evident increase in the level of stress, including financial stress caused by unemployment.  We are currently at the early stages of the oncoming stressdemic.  According to Research in Labor Economics[1], male workers aged 25-55 who experienced long-term joblessness in the 1980-1982 twin recessions had a sharply increased probability of long-term disability decades later.

To those who may qualify for disability insurance, I’ll sum it up by saying, don’t leave yourself and your family exposed without it.

Eric Benchetrit: “Disability insurance is especially important for self-employed individuals”

Eric Benchetrit – Financial Services Industry Consultant and Thought Leader

Our worlds are supported by our incomes. What would happen to your world if a disability destroyed your ability to earn an income? If you save 10% of your earnings each year, only six months off work would wipe out 10 years of savings.

Most people insure their homes, their contents, their cars and their jewelry. But what about protecting the one thing that makes all of those possessions possible? Statistically, a disability is far more common than a home catching on fire, yet many people assume their homes are their most valuable asset. Your health is your wealth and your earning potential is your most valuable asset. If disabled, a 35-year-old earning $48,000 per year could stand to lose over $3,000,000 by age 65 (assuming a 3% increase per annum). Even a temporary disability could affect your ability to work and take home a paycheque. Without disability insurance to help cover expenses, many families would find themselves in financial trouble.

There’s a misperception that disabilities tend to be catastrophic in nature—caused by one-time, traumatic events, like an injury as a result of an accident. But disability insurance policies can also cover common, chronic conditions such as depression and arthritis.  The younger one is and the further out in the future retirement is, the longer your financial exposure to disability.

In the event of accident or sickness, disability insurance policies typically provide up to 2/3rds of your pre-tax monthly income to cover your bills. You can claim and collect the proceeds, when due to injury or sickness, you are unable to perform the duties of your regular occupation and you are under the care of a doctor appropriate to your disability. 

Which job would you prefer? 

Job ‘A’

  • $50,000 income while you’re working
  • $0 if you are unable to work

Job ‘B’

  • $48,345 income while you’re working ($50,000 less the annual premium)
  • $30,000 tax-free if you are unable to work

Disability insurance is especially important for self-employed individuals. Even if you have disability insurance through an employer, a review of coverage may reveal that you don’t have enough or can identify potential benefit limitations.

Paul Grimes: “1 in 3 working Canadians will suffer a disability longer than 90 days during their working lives”

Paul Grimes, Senior Vice-President, Sales iA Financial Group

Current statistics tell us that 1 in 3 working Canadians will suffer a disability longer than 90 days during their working lives. Are you prepared? Even the possibility of a temporary disability setback could affect your family, and during these strange times, many families may find themselves without the ability to meet their weekly and monthly financial commitments.

While many Canadians believe they are fully covered through their work, this may not be the case at all, so its time consumers and advisors take action and fully review the benefits they have and the top up they need.

Remember, a full disability program will make sure Canadian families don’t suffer hardship if an accident or long-term illness strikes.

Natalia Teplova: “The truth is, no one plans to get disabled”

Natalia Teplova, Regional Director Hub Financial Inc.

Recently I learned about a young guy who sustained a significant head injury. He is only about 23 years old and now in ICU with dim prospects of recovery and future ability to work. The sad fact is, he is self-employed with no disability coverage in place. He did not think it would happen to him.

Nobody plans to get disabled. No one has a crystal ball to tell them their future. Disability insurance provides peace of mind. If the unthinkable happens, there will be solid financial support they can rely on.

Jaclyn Nemethy: “Canadians are more at risk to face a long-term disability than die”

Jaclyn Nemethy, Regional Director, Strategic Relationships, PPI

Let’s look at the odds: disability vs death. At any age, Canadians are more at risk to face a long-term disability than die at that age. Protecting your most important asset – your ability to earn income – is the foundation of any sound financial plan. If your income were to stop tomorrow, how would you cover your life insurance premiums, RRSP/RESP contributions, and fixed expenses such as a mortgage payment? 

Unfortunately, the Canadian disability insurance market is underserved. There are more than 17 million working age Canadians in Canada.  Currently only about 6 in 10 Canadian receive some type of salary continuance in the event that they are absent from work due to either a physical or mental health issue. That leaves over 7 million Canadians that have no short-term or long-term disability benefit through some type of group plan.  Where is the opportunity?  According to the latest LIMRA study, it was found that there are only 810,000 disability income replacement policies in-force!

Does a group plan offer enough protection? It is important to know a few key aspects about group disability plans. Typically, they pay a percentage of your gross salary – between 60% to 85%. There is always a maximum dollar amount. It is important to note that the definition of disability changes after two years of claim to “any reasonable occupation” and you may be forced back to work at a different job than you were doing before the onset of the disability. These plans are usually coordinated to make sure that all the benefits you receive are not greater than your normal income. Lastly, group plans generally terminate when you leave an employer.

At the end of the day, a group disability policy offers a base of disability coverage that should be reviewed by an insurance specialist to make sure that the insured has enough protection in order to cover their major liabilities and expenses. Group plans are not always sufficient coverage for your client’s DI needs.

Notes:

1. “Research in Labor Economics”, 38: 259–305 / reference:  Couch, Kenneth A., Gayle L. Reznik, Christopher R. Tamborini, and Howard M. Iams. 2013. “Economic and Health Implications of Long-Term Unemployment: Earnings, Disability

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