Disability Insurance: A must have for business owners and self-employed professionals
If you are self-employed or a small business owner, the risk of being unable to work due to illness or injury can be especially daunting. Without the safety net of employer-sponsored benefits, a period out of work could quickly turn into a financial crisis? Luckily there is a solution for that – Disability Insurance. It pays you a monthly amount; to cover your expenses so you can focus on rehab and recovery and return to work full time as soon as possible.
Why does Disability Insurance Matter?
Most Canadian employers offer long term disability coverage to their employees, it is an expensive coverage and usually the premiums are paid by employees, but they can avail of lower rates for large groups. Self-employed individuals do not have that safety-net to fall back on. If they are disabled due to an illness or an accident, they face potentially catastrophic impacts of being of being out of work while on long term disability.
According to a report published by Canadian Life and Health Insurance Association, 1 in 3 Canadians will be disabled for 90 days or more in their working lives. Given the high odds, it is critical for self-employed individuals to secure this coverage while they are still in good health.
Consider a 49 year-old who earns $85,000 annually. If she is disabled at the age of 49 and is unable to return to work until age 51, she will have lost $255,000 in earnings over the three years. Unfortunately, she will still incur living expenses and she may go into debt to support herself and her family.
A disability coverage would have provided her with up to 70% of her monthly income to cover her living expenses.
On the other hand, if she had bought disability coverage for $4,000 a month payable up to age 65, she could have received $1,44,000 in tax-free* claim payments.
If she was unfortunately disabled for the rest of her working life, she would receive the following total potential claim payments up to her age 65
Disabled at age | Total potential payout |
Age 50 | $720,000 |
Age 55 | $480,000 |
Age 60 | $240,000 |
A note on taxation – To ensure that the insurance proceeds are tax-free to you, do not deduct the insurance premiums as a business expense.
Disability insurance gets you income protection and peace of mind. For self-employed professionals and small business owners, it is an essential part of a sound financial plan, providing a vital safety net when you need it most.
Contact me for a disability quote today.
Source: CHLIA – A guide to disability insurance, 2016.
