Preparing for the Worst

Life is good. You’ve got it all together. You’re paying the bills, doing OK at work and at home. You’re paying down the house, saving for your kids’ education and your own retirement.

But what if you lose your job and struggle to find another? What if you become ill and can’t work? Your good financial house can come crumbling down very quickly. When there’s suddenly no (or very little) money coming in, you can quickly obliterate your savings accounts and RRSPs. You may start to struggle to pay the rent or mortgage and wonder where you’ll live.

Sorry, this isn’t very nice stuff to think about. But it is the scenario you need to draw out when deciding what kinds of insurance you need. Since injury or illness leading to disability is the second most common reason people in Canada declare bankruptcy, it’s a big deal.

Accidents and illness do happen. You know how out of it you can be when you’re hit with a nasty cold. A broken limb, cancer, heart disease or depression could render you unable to work for weeks, months or even years.

According to Statistics Canada, 7 in 100 adults between ages 25 and 44 become disabled. That number increases to 17 in 100 for people from ages 45 to 64.

Government programs will only offer you limited funds. So check with your workplace to find out what kind of workers compensation packages are available. Will this coverage extend to you if you are ill? What if you get injured at home, and not on the job, will it cover you?

If you have insurance through work, meanwhile, check into how much it will cover you.

Next, look around at the insurance products available out there.

Disability insurance

This insurance gives you a monthly income if you are unable to work due to injury or illness. Most insurance companies have a wide range of plans, starting with basic programs for average and low-income Canadians, and higher cost plans for business owners and professionals. A lot of research is required here to compare rates and check around for the type of plan that fits your work and your personal life. Note that many plans also come with riders that allow you to tack on extra benefits that will cover you in the case of partial disability, give you cost of living increases and allow you to upgrade your insurance even if you could not pass a medical in the future.

Critical illness insurance

Getting diagnosed with a serious illness can devastate your family financially. You won’t be able to work, you may have extra costs associated with medications and travel to get healthcare. Your spouse may need to take time off work to care for you. If you are covered by critical illness insurance and develop an illness from the list of covered conditions — which can include cancer, heart attack, stroke, kidney failure, loss of limbs, deafness and organ failure — you get a cash payout. Some policies list certain illnesses for full payout and other, less serious conditions put you in line for a partial payout.

This type of insurance usually sells for a set term, such as 25 years or until you reach age 65 or 75.

Some critical illness policies have an interesting rider that lets you get your money back if you don’t use the insurance during the life of the policy. You’ll pay for this privilege, but it allows you to roll that money into retirement savings if you stay well until your senior years.

All these policies require medial questionnaires and exams and serious research by you. You want to make sure you have the right policy for your unique work and life situation. It`s best to speak with a licensed insurance broker who can help to assess your needs get you sorted with the right amount of coverage.

It’s of course a good idea to have an emergency fund to deal with the twists and turns that life may throw at you along the way. Consider saving up for possible future issues, but also take a serious look at insurance and what it can do to help you make sure your long-term prospects stay healthy.

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