Here is what I often use to help illustrate the importance of proper disability insurance. This one was for a 35-year-old father who earns around $80,000 per year. He has no disability benefits through his work and his income is important to him. Before he met me, he never really thought about how financially devastating a disability could be. He told me that he needed a minimum of $4,000 per month of income to meet his financial obligations. Without insurance, where would that money come from? What happens if he had no insurance and couldn’t work for a year? Let’s look at the alternatives.
I don’t NEED disability insurance, I’ll just borrow the money.
If you needed to take out a $48,000 loan, it would cost you close to $510 per month for 10 years to pay it back. This is assuming a 5% interest rate. The challenge is that the bank may not loan you the money if you are not working, and if they do, they could jack up the rate due to the increase in risk.
I don’t NEED disability insurance, I have equity in my home.
Are you planning to sell and downsize to create the capital you need, or would you refinance? If you sell, you must factor in all the costs that are associated in selling a home and is that what you really want? If you refinance, a $48,000 mortgage would cost you around $230 per month for 25 years based on today’s interest rates. You will also need to factor in the penalties to break your mortgage and the fact that it may be difficult to qualify if you don’t have an income coming in.
I don’t NEED disability insurance, I have investments I can use:
Where are most of your investments and why are you investing that money in the first place? If you took money out of your RRSP, you would need to factor in the taxation. You would need to withdraw roughly $70,000 of RRSP’s to net $48,000. Think about how long it takes to save $70,000, that could be wiped out in only 12 months. Also, aren’t your RRSP’s are for retirement? If you left the $70k in your RRSP, it could be worth around $400,000 (assuming a 6% rate of return) when you turn 65.
As you can see, a disability can really throw a financial plan off track. This above example illustrated a disability lasting only one year – what if it lasted 2 years, 5 years or lifelong? What lifestyle changes would you be forced to make if you didn’t have adequate disability insurance in place?
Disability insurance is not always going to be expensive – it depends on your health, age and occupation. That said, becoming disabled without disability insurance can be extremely expensive and can financially destroy everything you have worked so hard for.
In this example, the client ended up taking a top of the line disability insurance policy that would provide him with $4,000 per month, tax-free. He is only paying around $100 per month, and that cost will not increase as he gets older. In fact, even a claim will have no impact to that price he pays or the coverage he has purchased.
What do you think, should Disability Insurance be something you should absolutely consider if your income is important to you?
By Jeff Romansky
CHS, CPCA Principal, SecurePlan Insurance Solutions
Jeff started his insurance career in 2006 when he joined RBC Insurance. During this time, he helped hundreds of insurance advisors grow their business by providing them with comprehensive advice, consultation and training. His commitment to building strong relationships, paired with his positive attitude and specialized expertise led him to win multiple awards including being #1 in his position throughout Canada on numerous occasions.
After nine successful years at RBC Insurance, he decided to pursue his dream and start his firm to help professionals, executives and owner-managed businesses with their individual insurance and employee benefits. Jeff proudly serves clients throughout Southwestern Ontario and the GTA.
Jeff Romansky is a broker, so you can be confident that he is working for you and not the insurance company. He consultative approach is welcomed by his clients as they never feel pressured and are always correctly informed. When necessary, Jeff will work with or bring in trusted partners to meet your overall financial goals. He is committed to building long-term relationships with all his clients and viewed as a trusted partner to many.
Jeff’ resides in Grimsby with his wife and daughter. When Jeff isn’t hard at work, you can find him with friends on the golf course, curling rink or camping with his family.