You must be thinking about your house, cabin or cars, but what about your ability to earn income? The amount of income you can earn throughout your life is certainly much higher than the value of all of your assets put together.
Take a thirty-year-old earning $50,000 per year and planning to retire at age 65. With a 2% growth in earnings per year, she will have earned approximately $2,500,000 throughout her life.
Disability insurance (salary replacement) protects you against the possibility of losing this ability to earn income.
The financial impact of disability can be greater or smaller, depending on its duration. You will not suffer the same consequences if you break your arm or if you are diagnosed with multiple sclerosis or cancer.
A few surprising statistics on disability
If you become disabled for an indefinite period, would you be able to meet your financial obligations? Is your salary as well insured as your property?
Let’s assess your coverage.
- Group insurance
People who work for a company offering group insurance are privileged to have access to disability insurance. There are two types of coverage: short- and long-term disability. Both are not always offered.
Check the terms of your insurance policy: what percentage of your salary does the insurer cover? Is this percentage applied to your gross or net income? Is it the same for both short- and long-term? Can it be improved? Is the amount taxable or not? Is the amount of coverage enough to meet your obligations?
To qualify for indemnities from the CNESST, you must be victim of an accident or illness directly linked to your work. The CNESST covers 90% of your net earnings (after taxes). However, this amount is determined based on annual insurable earnings which cannot exceed $74,000 (2018 amount) which limits the indemnity if you earn more.
To be eligible for SAAQ benefits, you must be victim of a car accident preventing you from completing work-related tasks or returning to your normal activities. The indemnities are the same as CNESST.
- Québec Pension Plan
To be entitled to disability benefits from the QPP, you must fit their definition of invalidity. This definition is so restrictive that very few people qualify. To get an idea of the amount you could receive, I recommend checking your QPP contribution statement. The gross amount could reach $1,236 per month.
- Credit insurance
This type of insurance is often proposed by financial institutions to cover your debts in the event of disability. Caution is advised since these are often expensive solutions and not necessarily of good quality.
Disability insurance is complex. There are many possible definitions, numerous product types and a lot of variables (waiting period, length of the benefits, indexation, exclusions, etc.) creating confusion and making it difficult to navigate.
We spend thousands of dollars to insure our property such as our house, cabin, cars, etc. Most people also have life insurance, but when it comes to disability insurance, very few people are aware of their coverage.
To bring you peace of mind, I recommend planning a meeting with your financial advisor, who will be happy to assist you.
And if you have any doubt, contact us!