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8 Most Common Reasons Your Life Insurance Application Will Be Declined

August 16th, 2016
commons reasons declined life insurance

For some people, getting the life insurance coverage they need is not easy. Factors such as health conditions and lifestyle choices play an important role in determining whether or not a company sees you as a qualified candidate. Lying on your application to hide potentially damaging facts won't help. It might get you a great policy at prime rates, but when it comes down to filing a claim, the insurance company will discover the truth, and your claim will be denied.

We reached out to Gisèle Babineau, Chief Underwriter with Assumption Life, for the most common reasons a person may be denied life insurance coverage. The reasons for being declined vary from one company to another, and there is also a significant gap between a re-insurer and insurer because many insurers do not shop their declines with their re-insurers. However, in general, these are the most common reasons why an application may not be approved.

Medical Reasons

A medical condition under investigation.

If you have some symptoms of an illness or disease, but all of the results aren't in yet, your medical condition is considered under or pending investigation. During this period, you are considered a high risk applicant and the insurance company may deny coverage or delay their decision. Once you are cleared of any possible long-term illness or disease, the company will probably approve your application or ask you to re-apply with the new doctor's report.

High grade cancers.

Cancer can develop in any part of the body. Where it occurs determines its type. For example, lung cancer develops in the lungs. All types begin as a tumor and how the affected tissue looks under a microscope indicates how quickly the tumor cells will grow and spread. Based on the appearance and other factors, doctors can assign a numerical “grade.”

The grade of the cancer is not the same as the stage. Stages refer to the size or extent of spread. Malignant tumors are very low grade and almost always be completely removed. High grade cancers tend to grow quickly and spread rapidly, putting your life at a higher risk.

Nervous disorders.

A nervous disorder or anxiety can be caused by stress or many other factors. It is usually defined as excessive worrying, apprehension, unexplained fear and nervousness. These disorders affect your emotions and behavior, and may manifest into real physical symptoms. Most people will experience mild anxiety at some point in their lives, but a nervous disorder can become a serious problem when the symptoms begin to interfere with normal functioning. This can affect your work, your ability to control a motorized vehicle and other situations that can put your life in danger.

Heart disease and other cardiac disorders.

Heart disease affects millions of Canadians, however the fatality rate has dropped considerably. People can now live normal, relatively healthy lives with a wide range of cardiac disorders and the chances of recovering after a heart attack or stroke have greatly increased over the past few decades. But, according to life insurance companies, these people are still a high risk and may deny coverage even if you have been symptom free for several years.

Uncontrolled diabetes.

With the right care, like a healthy diet, regular exercise program and proper medical supervision, and maybe an insulin regime if necessary, most diabetes can be controlled quite effectively. However, in rare cases a patient can lose control due to various circumstances such as emotional stress or tragedy. If you have been recently diagnosed, you might not yet have control of the disease. These situations put you at risk and therefore, your application for life insurance may be declined. Once you have your diabetes under control, you can reapply.

Non-medical Reasons

Alcohol consumption and drug use.

Alcohol consumption and drug use affect the way you think and react to situations, which can seriously impair your judgment and your safety. How much you drink or use drugs is a lifestyle choice and should be reported on your application for life insurance. Hiding these facts may help you get approved, but the truth will come out eventually. A glass of wine with dinner or a sleeping pill before bed might be harmless enough, but it should still be reported.

Motor vehicle infractions.

When you drive recklessly, you are not only putting your own life on the line, but you are also jeopardizing the lives of everyone else on the road. Multiple speeding violations or other infractions classifies you as a reckless driver. If you have a drinking and driving charge on your record, you are considered an even higher risk.

Criminal activities.

Most criminals aren't too eager to report illegal behavior. You may be very tempted to leave that part of the application blank or to answer “no” to any questions about criminal activities. One quick check into your record and the company will know, so you might as well be honest. Insurance companies have to consider the possibility of incarceration and how that can affect your health. The stress of incarceration itself can take a heavy toll on your health, but there is also the chance of contracting a disease that could lead to death, getting killed by another inmate or starting heavy drug use. Any one of these scenarios put your life at serious risk, and that's a risk the insurance company does not want to take.

These are just a few of the reasons why an insurance company may decline an application. If any of these situations apply to you, you can change your lifestyle choices and get your medical condition under control. You may also want to look into a No Medical Simplified Issue application. This is a non-medical type of life insurance policy, which means you don't need a medical exam. You will still have to answer some health-related questions and some restrictions may still apply, but you have a good chance of getting the coverage you need.

Average Size Mortgage in Canada Compared to Other Countries

August 8th, 2016
mortgages canada comparison world

At the end of 2015, the total Canadian mortgage debt stood at $1,262 billion. That puts Canada's GDP well above other G8 countries. The vast majority of Canadians are typically responsible borrowers with a strong financial strategy.

With job losses and huge increases in house prices, some people find they have overextended themselves. However, it is important to put this into the proper perspective. More than seventy percent of Canadian household debt is the mortgage on the family home. A home is a big ticket item that can increase in value, thereby increasing a person's net worth.

Statistics show that Canadians are generally managing their mortgages quite well. A recent study by Mortgage Professionals Canada revealed that about 17 per cent of people with mortgages have increased their payments and that approximately 18 per cent have made additional lump sum payments at time of renewal. In fact, the study shows that more than 75 per cent of mortgage holders have done something substantial to shorten their amortization period.

By increasing the amount of their regular payments or by making bi-weekly payments instead of monthly, Canadians have built up a significant amount of equity in their homes. The average home equity is about 73 per cent of the home's value.

Of course, the increase in house prices has helped this number, but the fact remains that Canadians are trying to pay off their homes within or before the amortization period expires.

Size of the Average Canadian Mortgage

House prices vary greatly from one province to another, even from one region to another within the same province. In cities like Toronto and Vancouver, you are paying more than double than you would for a similar dwelling in Elmira or Cranbrook.

The average size mortgage in all of Canada is approximately $193 778. This number is similar to other G8 countries, however there are so many other factors to consider, you can't really use this figure as a basis for anything. The debt-to-disposable income ratio will tell more about the health of an individual or country's finances.

Average mortgage size by province:

Alberta – $243 561
British Columbia – $210 500
Manitoba – $139 850
New Brunswick – $102 250
Newfoundland and Labrador – $156 500
Nova Scotia – $114 545
Ontario – $187 200
Prince Edward Island – $102 400
Quebec – $226 972
Saskatchewan – $122 618

Keep in mind, these are averages. Many mortgages are higher, many are lower and some people have already paid their homes in full – no more mortgage at all. In general, mortgage debt has seen a steady growing period, which as been driven by various forces.

The housing market has been through a big struggle between supply and demand, with some cities facing a near zero vacancy and builders struggling to keep up, while others are virtually turning into ghost towns. In many regions, house prices have risen to an all time high, forcing home buyers to come up with larger down payments and taking on larger mortgages with longer amortization periods to finance their homes.

Banks closely monitor the levels of national household debts and economic growth trends to make sure borrowers are comfortably able to manage their debt load. Banks want to lend you money, and sell you insurance to cover the money they lend, however they must be prudent. Lenders have to manage their risk carefully and only grant loans or mortgages to clients with the ability to repay their debts.

These historically low interest rates on new mortgages can't last forever. Eventually, rates will go up. Banks know this and take this fact into account when evaluating a potential buyer's ability to keep making payments when rates do increase.

This means that the lender will usually assess your ability to pay based on rates higher than what you currently qualify for, so if the rates increase during the term of your loan, you will still be able to make your payments.

Insuring Your Mortgage

Most lenders will insist that you buy mortgage insurance so that they will be protected in case you die before your mortgage is paid off. Insurance is a great idea because it protects your family from the burden of a mortgage in case they lose the benefit of your income.

When insuring your mortgage, you basically have two choices – buy enough coverage from your regular insurance provider to pay the mortgage or buy insurance from the lender. Banks aren't in the business of selling life insurance, and in most cases, are only authorized to provide loan or mortgage protection.

This means, they only cover the amount you owe. The problem is, the more you pay off on your mortgage, the lower the insurance payout. When the loan is paid in full, your coverage ends.

So you will have to have a separate policy to provide protection for your family. Just one policy that covers your mortgage and leaves enough over for your family will save you money and give you more peace of mind.

10 Nutritional Supplements That Could Hurt Your Insurability

July 25th, 2016
nutritional supplements life insurance

Before applying for a Life Insurance policy, it is the applicant’s responsibility to provide truthful and relevant information regarding his or her health conditions, lifestyle and financial status, which helps an insurance company properly evaluate whether the applicant is qualified for coverage and at what premium.

As soon as the person applies for a policy, the insurance company runs their application through a strict underwriting process to confirm if that person is eligible to own a life insurance policy. The underwriting consists of 3 important steps:

1. Examining the Application: The person’s information, especially their health history which is closely examined to see the risks attached to their health.

2. Decision: After examination, the life insurance Company decides whether this person is eligible for a life insurance policy.

3. Determining the premium: The Insurance Company determines at what premium this person should be insured. It is the premium amount that the insured person has to pay every month.

Reasons for declining the application

There are many reasons due to which the insurer might reject your insurance application. If there are high levels of risk attached to your health or life, then the insurer might think twice or maybe thrice to whether approving your application or not. Many people suffer from severe health conditions due to which their application gets rejected. If by any chance it gets approved, then they are required to pay high premiums every month.

Some of the conditions include:
1. Obesity
2. Cancer
3. Heart Diseases
4. Drug & Alcohol Use
5. Reckless Driving
6. Kidney Diseases
7. Liver Diseases
8. Diabetes
9. Other incurable diseases

Do nutritional supplements affect health?

There is a significant myth that taking health supplements can improve your health exponentially if your nutritious food intake is not adequate. If a supplement says it’s ‘Natural’, that doesn’t always mean that it’s entirely safe to have. Always remember that some nutritional supplements can’t be substituted for healthy foods. Consuming natural forms of nutrition is very important.

Taking excessive amounts of nutritional supplements can have a negative effect on your health as well. If you are not having an adequate amount of nutritious foods, and you’re just relying on health supplements, then you might be worsening your health even more. For instance, if you take a lot of vitamin A, it may result in liver damage, headaches and can affect your bone strength. Also if you are taking iron in excess, it may cause nausea and can damage your liver and other organs as well, all of this could lead to a bigger health issue overall.

A report from Health Canada states that 71% of Canadians used health products like vitamins, minerals, and herbal products, of which 12% Canadians who used these products informed that they experienced side effects.

How insurability is affected

Below is the list of 10 supplements that could increase health risk and may also cause a life insurance application to be declined indirectly, due to the onset of an ailment induced by taking one of these supplements.

Bitter Orange: This supplement is considered one of the deadliest by FDA and was banned in the year 2004. It is used for weight loss and relieving nasal congestion, however consuming bitter orange with stimulants such as caffeine increases the risk of heart attack, fainting, high blood pressure and other irreversible illnesses.

Chaparral: This herb is derived from creosote bush and is used for weight loss, cold and infections. Taking high doses of chaparral can lead to liver and kidney toxicity, leading to the poor health of these organs.

Colloidal Silver: It is used to treat food poisoning, infections, and facial redness also known as rosacea however its excessive use can lead to neurological illness and can harm the kidney as well.

Greater Celandine: It is used to treat bowel problems, upset stomach, and detoxification. Continuous dosage may lead to liver damage.

Coltsfoot: This supplement is used to treat a cough, asthma, and sore throat, however; its regular intake can lead to liver damage and cancer.

Kava: This herb is used to treat anxiety, however, it can cause liver damage. The remedy is banned in Canada, Germany, and Switzerland.

Germanium: It is used to treat heart diseases, liver problems, and reduce pain. Continuous use of Germanium can lead to kidney damage and in worse conditions, death.

St. John’s Wort: This supplement is taken as an anti-depressant. Its regular use may lead to unpleasant side effects and harmful drug interactions when combined with other medications.

Country Mallow: It is used to treat asthma, allergies, and nasal congestion. Regular intake can cause a heart attack or even death.

Yohimbe: It is used to treat chest pain, diabetes, and depression. Regular doses may increase heart rate, blood pressure, and heart problems.

If an applicant is consuming hazardous supplements that result in poor health conditions, and if he has a history of bad health, then the insurer may decide to reject their application and not make an offer at all.

What The Financial Experts Own – Lorne Marr

July 14th, 2016

Lorne Marr Director of New Business Development at LSM Insurance
Life Insurance Expert Lorne Marr

Lorne Marr

Director of New Business Development, LSM Insurance 

1. What Type of Life Insurance do you own?

I own two 20 Pay and one 10 Pay Whole Life policies and a Term policy. I was lucky enough to take out the Limited Pay Whole Life policies when I was quite young. Since that time premiums on these type of plans have significantly risen it cost. Plus I'm a lot older now :) My Father also took out a small Participating Whole Life policy with Manulife which I have maintained.

2. What factors did you consider when determining the coverage amount?

I purchased my first life insurance policy before I had any dependents. I did so because I wanted to lock in at a favourable rate. For subsequent purchases I did a needs analysis factoring in how much coverage my family would need if I died.

3. Do you believe in Life Insurance for Children?

I do - with the caveat that your other financial obligations are being covered. As mentioned my father bought my brothers and I each a small Whole Life Policy with Manulife. We have all maintained these policies and had a nice little bonus when Manulife demutualized.

4. What is The Biggest Life Insurance mistake people make?

Not buying enough life insurance or not buying any at all. Life Insurance is the most unselfish purchase someone can make because its not for you. This combined with the fact that most people don't won't to think about their own death leave a lot of people grossly under insured.

5. Outside of Life Insurance what other types of individual insurance are often over looked?

The chances of becoming disabled are much higher than dying over a 20 or 30 year window. Another variable is a lot of life insurance agents don't properly understand disability insurance.

Lorne was born in Toronto, Ontario. He started in the life insurance industry in 1993, with Metropolitan Life after completing his MBA at the University of Windsor and has been helping families and business owners meet their insurance needs for over 20 years. He has won numerous sales and services awards and has appeared in the Toronto Star, The Globe and Mail, The National Post, The Toronto Sun, The Investment Executive and Money Sense Magazine.

He is also a fitness enthusiast and has recently launch his own fitness blog, Lorne Marr Fit After 45.

<Back to Life Insurance – What The Experts Own

Life Changing Events That Trigger a Need For Life Insurance

July 12th, 2016
life changing events life insurance

There are dozens of reasons why someone would need life insurance protection. Most of the events that would trigger a life insurance need are life changing events that have a major impact on one's finances. Check out the reasons why you need coverage if you experience one of these life changing events.

Getting Married

Once two people get married, or are considered common-law, they automatically assume certain financial rights and obligations towards one another that otherwise would not apply. If one spouse is dependent on the other's income, the dependent spouse could face financial hardships if the bread-winning spouse were to suddenly die.

The loss of income alone could prove devastating to the surviving members of the family once emergency funds are depleted. It's not realistic to depend on help from extended family or government sources alone to be able to survive in most urban Canadian environments. Having adequate life insurance coverage would be necessary for the surviving spouse to maintain their standard of life.

Buying a Home

A new home is likely the largest single purchase anyone will make in their life. With the vast majority of home purchases, the buyer must borrow money from a lender in the form of a mortgage. If the person paying down the mortgage were to pass away, the other inhabitants of the home would have to find a way to continue making mortgage payments. Insuring your mortgage with individual life insurance is a good idea to cover that potential risk.

It's worth mentioning that when a home buyer applies for a new mortgage, the lender will usually offer mortgage insurance. These plans are riddled with negative features for the consumer. Things like post-claim underwriting, higher premiums and decreasing face amounts make these policies considerably less valuable than traditional individual term life insurance.

Having a Baby

Children are dependents and rely on their parents for food, shelter and future expenses like costs of post-secondary education. When planning for the worst case such as the death of a bread-winning parent, you need to factor in all the potential risks the child would face. The surviving parent or guardian should be financially equipped with enough money to last until the youngest child is at least 18.

When a new baby comes into the picture, coverage amount should typically be increased to cover this new liability. Use a child care calculator to get an idea of how much money you would need to replace should your death occur.

Changing Jobs 

Whenever you are switching jobs, you may lose access to group life insurance policies that you may need to rely on. Confirm with the plan administrator at your company to see whether or not you have the option to continue your life insurance policy once you leave. 

Also check with your new employer sooner than later to see what level of life insurance coverage your new benefits will provide. If the new employer does not offer life insurance or the face amount limits are too low, it's a good idea to take a look at individual life insurance plans to cover your needs.

Starting a New Business

When an entrepreneur starts a new venture it can be easy to overlook insurance needs. Business and Liability insurance is usually the first thing they will think of, without considering the potential need for life insurance should they pass away. Two risks that new businesses will face can be relieved in part by the concepts of key-man insurance and by funding buy-sell agreements with life insurance.

Key-man insurance will provide a payout to the company should a key person were to pass away. If it can be determined that the company has an insurable interest in the life of the key person, a life insurance policy can be taken out on their life. The company would be listed as the beneficiary. The death benefit would be used to replace the deceased employee and cover any additional switching costs such as training the new employee.

Buy-sell agreements are put in place when a partner in a company passes away and their shares and/or decision-making power within the company are inherited by a loved one. The family member, now a new partner in the company, may not be a good fit for the business so a buy-sell agreement forces the sale of the share back to the company. These buy-sell agreements are often funded by life insurance policies purchased by the company. The cost of the shares are usually based on a formula such as current market value times a multiple.

Term insurance policy coming up for renewal

If you own term life insurance, rates are only guaranteed to stay level for a specific term after which the rates change, usually increasing drastically. One thing insurance companies won't tell you is that they build a buffer into the pricing when renewing a term life insurance policy. They assume the insured is in poor health at the time of renewal and add this higher cost of insurance into the the renewal premium. If the insured is in good health, he or she should likely reapply for a new plan.

It important to never cancel an existing policy until the new plan is approved and in force first. If the new policy application is declined or rated it may be a better idea to pay the renewal rates with the existing policy. Thus, it's advisable to reapply for new term life insurance at least 6 months prior to the existing policy renewal date.


Other than switching to a new job, retiring may be another way you could lose access to group life insurance benefits. Some group policies will allow the plan certificate holder to convert their group life coverage into an individual permanent plan, however these plans can be very expensive as insurance carriers will build a buffer into the renewal rates of these individual permanent insurance options. 
The costs are these conversion options are usually much higher than the premium cost of comparable permanent plans available in the market. It's always best to shop the market for the best available coverage at the lowest rates possible by speaking with a licensed life insurance broker.  

What The Financial Experts Own – Promod Sharma

June 2nd, 2016

Life Insurance Expert Promod Sharma
Life Insurance Expert Promod Sharma

Promod Sharma

Actuary, Taxevity Insurance Advisory 

1. What Type of Life Insurance do you own?

I’ve developed insurance products for various companies and prefer designs with flexibility, accountability and transparency. I have universal life insurance for estate planning and term life insurance for temporary needs. I’ve avoided whole life insurance because the plans are opaque and transfer risks to the buyers.

2. What factors did you consider when determining the coverage amount?

I looked at how much monthly income my family would lose if I died and got enough life insurance to replace that for decades. When we had a mortgage, I made sure to have enough term life insurance to pay that off.

3. Do you believe in Life Insurance for Children?

Generally no — unless your kids earn enough to pay their own premiums. The death of a child is tragic, but doesn’t the loss of a parent cause more financial harm? Parents could invest in more insurance on themselves instead.

4. What is The Biggest Life Insurance mistake people make?

Getting the wrong life insurance. Here are some common ways:

  • Selecting Term 10 when Term 20 or Term 22 would be a better fit
  • Buying too much permanent insurance and too little term, and vice versa
  • Buying based on price without considering the insurance company’s reputation for flexibility, service and paying claims
  • Deciding what to get before knowing what’s available
  • Procrastinating, which makes you the insurance company

5. Outside of Life Insurance what other types of individual insurance are often over looked?

All of them. The risks magnify if you don’t have generous employee benefits and a defined benefit pension plan. If an illness or injury prevents you from working for months or years, what happens to your income? Disability insurance helps replace the income lost. The premiums look high but that’s because the risks and costs of getting disabled are high. If you have a dreaded condition like cancer, a heart attack or blindness, medical insurance only reimburses your eligible expenses up to specified limits.

What about what’s not covered? That could be your spouse taking time off work, renovating your home to accommodate a wheelchair or traveling outside Canada for fast treatment. Critical illness insurance reduces financial stress by providing a tax-free lump sum to use as you wish.

During retirement, you face the risk of running out of money. Life annuities provide guaranteed income you cannot outlive. Maybe a portion of your savings belong there? If you’re unable to look after yourself, who will? The cause could be dementia or losing the ability to do basics like eating and bathing on your own. Long term care insurance provides cash to use as you wish. Since insurance isn’t free and your health affects your eligibility, you face trade-offs. Ignoring the risks doesn’t stop them.

Promod Sharma (“pro-MODE”) is an actuary who developed life & health insurance products and later supported advisors. He now helps people in the Toronto region transfer financial risks with insurance. He’s written 800+ blog posts, recorded 250+ podcasts and published 100+ videos.

He’s a member of the Conference for Advanced Life Underwriting (CALU), a Fellow of the Society of Actuaries (FSA) and a Fellow of the Canadian Institute of Actuaries (FCIA). Promod serves on the boards of CARP Etobicoke and the Western University Alumni Association. You’ll find more details on LinkedIn.

<Back to Life Insurance – What The Experts Own

8 Reasons Why You Should Secure Permanent Life Insurance Before 2017

May 26th, 2016
new life insurance legislation 2017

New tax legislation is set to take effect on January 1, 2017 which will change the way policyholders are taxed for deposits toward certain life insurance policies.

Policies issued after 2016, also know known as G3 tax generation policies, will offer less exempt room over the long-term.

This new legislation will mostly affect affluent policyholders as the tax deferral features of these life insurance products typically benefit people in the higher tax brackets.

One major change is that surrender charges will no longer impact the allowable tax-deferral room in universal life insurance policies. Previously, if a policy had high surrender charges it would allow for high deposits eligible for tax deferral. Within the new framework, surrender charges will no longer impact how much tax exempt room is allowed.

Level Cost of Insurance (LCOI) Universal Life Insurance policies will be hit the hardest by the new legislation. Under the new rules, the amount of deposits allowed for tax-deferral purposes will decrease drastically.

Another type of permanent life insurance product known as Participating Whole Life, has an investment element but does not need to be managed by advisors.

Industry veteran and life insurance expert, Jim Ruta, explains in his recent column in the Investment & Insurance Journal why it’s a good investment to purchase Participating Whole Life insurance before the new legislation takes effect in 2017.

Here is a summary covering some of the points he made:

1. You can’t outlive whole life insurance. Your protection will be there no matter what, so long as your premium is paid.
2. Once established, it can pay for itself automatically if you can’t or forget – and that means growing cash value too.
3. Its value is predictable, guaranteed, never goes down and written down in black and white in the contract.
4. It’s almost like an unlimited tax free savings account because much of the internal gain is tax-sheltered and contributions are not limited.
5. It’s a financial multi-tasker and automatically converts from asset creator to asset protector to asset over time.
6. Its tax-advantaged fund gives you peace of mind when you need cash in health emergencies, financial losses or opportunities. Be your own banker.
7. Its value is not directly related to markets so you can sleep better knowing you are insulated from volatility.
8. Whole life is an outstanding counterbalance to traditional investments, which is one of the reasons why it’s always been great insurance for children.

In his column "Corner Office Advice" in the Insurance and Investment Journal, Jim Ruta gives actionable steps on how to succeed as an advisor. He also offers coaching services for agents who need help to launch their career to the next level.

How Much Commission Does Your Agent Get Paid?

May 20th, 2016

Life insurance commissions have been a recent hot topic in the Canadian personal finance community. Certain types of policies pay more first year commission (FYC) than others and this creates the potential for some unscrupulous advisors to give bad advice to their unassuming clients.

Consumers have the right to know how their agent is compensated for the type of coverage they are taking out. The risk of a few bad agents recommending only high-paying products is real, so consumers should be aware of how their agent is being compensated to make an informed decision based on their actual needs. 

Check out our infographic below which breaks down the commission payable on some common life insurance products.

infographic life insurance agent commissions

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Why You Should Avoid Life and Critical Illness Insurance for Credit Cards

May 16th, 2016
life insurance credit card
Beware of insurance offered by credit card companies

Life insurance or critical illness insurance attached to a credit card is sold as a way to pay off your outstanding credit card balance, but in the fine print you'll discover it's mainly a lucrative money-making scheme for the issuing banks at the expense of policyholders.

A one-stop shop for covering your credit card balance in case of illness or death probably sounds incredibly useful and convenient at first. After all, you probably use your credit card daily, so why not pay to clear your balance, should something happen to you, through the same credit card?

Problem is, credit card life insurance and critical illness insurance policies will never pay off your balance entirely.

(Why You Should Avoid Life and Critical Illness Insurance for Credit Cards continued...)

Why Being Financially Unprepared for a Disability Could End Up Costing You

April 29th, 2016
prepared for workplace disability

A recent poll conducted by RBC revealed a disturbing fact: 48% of Canadians said that they weren’t prepared to be off work due to a disability.

This stat shows that many Canadians still don’t take the threat of losing their income due to a disability very seriously. Many individuals, especially those from younger age groups, feel like they aren’t at risk from serious disabilities and don’t need to have contingency plans in case they are ever unable to earn an income due to a long-term disability.

Other working individuals assume that their employee health benefits plan and government health plan will take care of all expenses and replace their lost income should they ever be unable to work because of a long-term disability.

These assumptions couldn’t be further from the truth. According to Mark Hardy, Director of living benefits at RBC Insurance, nearly one-in-three Canadians will experience a period of disability lasting longer than 90 days during their working lives.

Hardy also explains that many employee health benefits offer limited coverage and do not cover 100% of the disabled worker’s lost income. Meanwhile, the government health plan usually doesn’t cover the cost of most medications and other expenses such as recuperative therapy, dietician consultations, exercise programs, home nursing, prosthetics, home care, child care, meal preparation and moving expenses.

So, what happens when you have to deal with a long-term disability that leaves you unable to work for an extended duration of time?

For starters, there’s the sudden drop off in your total income. If you are financially unprepared to deal with this monetary loss, you could lose the ability to afford the lifestyle you’ve created. This could include being unable to pay for your house, car and other regular expenses. If you are the primary earner in your family, losing or having a reduced income because of a long-term disability could cause financial burdens for the rest of your family as well.

The RBC poll cited above revealed that 78% of Canadians who go on long-term disability report that their finances are tight and they struggle to meet their daily expenses. 67% reported that their lost income causes financial strain on the other members of their household.

In order to cover their expenses, 29% of Canadians on long-term disability said that they needed to dip into their life savings. 34% said they had to take on more debt in the form of loans from banks, family and friends. 9% said that they had to cash in their RRSPs and leave themselves financially unsecured for their retirement years. 31% even said that because of their disability, their partner had to go out and find extra work in order to supplement the family’s lost income.

These figures show that Canadians often end up financially struggling along with the rest of their family if they become unable to work due to a long-term disability and have to deal with lost or reduced income.
This is where having disability insurance could prove to be crucial. In an event of a long-term disability that leaves you without your regular income, having the proper disability coverage could allow you to maintain your lifestyle, cover medical expenses and provide for your family while you recuperate.

Experiencing a long-term disability and recovering from it are stressful enough tasks on their own. Don’t add the financial burden of your lost income to your list of worries as well. Have a proper contingency plan in place and get disability insurance coverage, especially if you are primary earner in your family.

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