‘Should I buy the extra insurance?’

Hey there, time traveller!
This article was published 15/02/2023 (1182 days ago), so information in it may no longer be current.

Dear Money Lady,

I have life insurance and I was considering getting disability and critical illness insurance, too. It’s a lot more expensive, and I don’t know whether I should spend the money on it. I’m self-employed.

What do you think?

Doug

That’s a great question Doug – and my answer is a resounding yes.

I want to tell you a story about a long-time client of mine who was gracious enough to allow me to share it. Once you read it, you will see why any type of personal insurance is never quite enough, especially when you are self-employed. Today, income protection (disability insurance) is often overlooked and considered too costly by most Canadians, who often feel they have sufficient insurance with their employers.

The story begins with a past client of mine (we’ll call him Dr. X) who had a very successful dental practice. He agreed to purchase a guaranteed renewable disability income policy that would give him income protection for his business. Dr. X would always call and complain about the payments but knew that he had to protect his business income since he was the primary breadwinner in the family. He had four girls and a wife who did not work. Dr. X had a big Honda Gold Wing motorcycle that he rode in the summers and he decided to join a friend taking a motorcycle driving course at a local college. The friend was a new rider who was not yet licensed but the course apparently offered something for all, including new driving techniques for already licensed drivers, such as Dr. X.

So, the two men went to the course one Saturday, but were not allowed to use their own motorcycles. The school provided learning bikes and Dr. X was given a dirt bike and… let’s just say it didn’t work out well. Dr. X flipped the bike and was badly hurt. He broke four fingers on his right hand and shattered his elbow, ulna, and wrist. With no use of his right hand or arm, Dr. X was forced into retirement at age 51. However, thanks to his disability insurance he could expect a tax-exempted monthly income of $18,600 until he turned 65.

The moral of the story is that you never know what will happen in the future and, unfortunately, no one is immune to career change or failure, personal accidents, or financial ruin. Things just happen. Life has a way of taking us on a rollercoaster ride of ups and downs and insurance is there for the “what ifs” that we hope will never actually materialize.

Insurance is costly and I know most Canadians will often make excuses to avoid the added expenses to their already tight budgeted lifestyles. But maybe we shouldn’t be so quick to decline it. Those who live paycheque to paycheque nowadays are especially vulnerable if they are severely hurt and cannot work again. Planning for your future must include planning for possible unexpected events. I know that insurance is expensive, however, I have yet to come across someone who got an insurance payout and said: “I got too much insurance money – take some back.” On the contrary, after something happens, they always wish they had more.

Here is an insurance stat to leave you with: one third of Canadians aged 35 or older will suffer a disability lasting at least six months before they reach 65. Of those who suffer a disability between age 35 and 65, 50 per cent of them will have the disability for five years or more and 30 per cent will be disabled for life. If you want to consider critical illness insurance, remember 2.4 million Canadians are diagnosed with a critical illness every year.

Remember, it is your responsibility to protect yourself and your family.