Who Pays the Bills When You Can’t Go to Work?

September 13, 2012

In 2011, the Canadian Payroll Associate (CPA) did a study that confirmed what
banks and various news sources had been reporting since 2010. Approximately 60%
of Canadians live paycheck to paycheck. If their income stopped, they would
have difficulty paying the essential bills. The study varied by region (64% in
Ontario) and family status (nearly 74% in single parent households).

These are scary statistics for anyone. As a financial advisor, talks about debt
repayment, saving for retirement and budgeting are a part of prudent financial
management. But even the best laid plans come to a screeching halt when the
income stops.

When a change of health or ability means that you have to stop working, even
temporarily, the long term effect on the financial plan can be disastrous.
Retirement may have to be delayed, and the quality of life enjoyed both then
and now can decrease. The need to maintain our standard of living can create
all kinds of stress during a time when stress should be minimized and the focus
should be on family.

In Canada, there are some sources of income that may be helpful during this time:

Depending on your circumstances, EI may be able to pay you a temporary benefit and/or
help you re-train to a job that is suited for you.

Worker’s Compensation can provide some relief as well, but only if the issue that arose
was directly related to, and as a result of your employment.

Beyond that, there are personal savings. But according to the Canadian Payroll
Association’s study, consistent saving is difficult for the majority of
households.

The other option to protect your income earning ability is a disability insurance
policy – which outsources the risk to the insurance company. The premium can be
considered as the price you pay to protect your biggest asset – your ability to
earn income.

If you are the primary wage earner for your family or if your household relies on
two paychecks, the responsibility of making sure that the bills get paid
continues, even if you have to stop working. Changes in our ability to earn
income are almost always unforeseen but proper planning can help you to be
prepared. Take an inventory of your assets and liabilities, in particular, the
obligations that would continue even if your income did not. If you don’t have
a reliable Plan B, talk to a professional versed in disability insurance. Look
for a designation such as the Certified Health Insurance Specialist (CHS) which
indicates that the advisor has been well trained in this area. Advisors in our
office hold this designation, and as always, you are very welcome to talk with
us.

For a link to the CPA study, please click here.

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