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Welcome to its personal finance, Canada, I’m Christine Conway, I’m Cameron Conway, and this podcast is a very personal look at personal finance in Canada
Christine: Hi everyone. This is Christine, and today we’re going to be talking about one of the most commonly missed elements in a financial plan,
Christine: Well yeah, that can be a pretty important part to overlook. But what I’m actually wanting to focus on is income replacement insurance which doesn’t sound all that interesting. But it’s actually one of those make or break elements of a financial plan, and when you kind of take a closer look, you can realize that everything else everything that you want out of life. All of your goals, retirement savings that Nice vacation, everything that you’ve got planned is based on your assumption that you’re going to keep earning an income at the same level that you are now or better.
Cameron: So you’re saying I can’t just can assume that I get to keep my two or three jobs that I’m working at the same time forever.
Christine: Well, income replace insurance is all about what happens if so the whole idea is, there will always be a certain percentage of the population that either gets hurt or get sick unexpectedly. So it’s these kind of one off events that you didn’t anticipate happening ahead of time. So it’s not like oh you’ve, already got this chronic condition. You know, if that’s the case, it might be a little bit more challenging to look at a comprehensive income replacement policy, but there’s usually still something on the market. It’s more to plan for the unexpected.
Cameron: The unexpected that we have to expect, because it’s unexpectedly expected expecting the unexpected.
Christine: I think that’s exactly what it is. It’s just making sure that your plan is bullet proof and making sure that I like to say Unstoppable that no matter what life throws your way, you’re going to be ready, you can continue to keep a roof over your head, feed yourself and feed your family.
Cameron: Well, that doesn’t sound too terrible. I haven’t really heard a lot of this kind of stuff before usually is just buy your Life Insurance get an RRSP and hope for the best.
Christine: Well, when you start thinking about disability insurance and that’s the that’s the type of income replacement or living benefit that will talk about first, you really have to frame the conversation with kind of what’s already out there and what’s available. If you do nothing kind of thing, so some people will have group plans and we can talk a little bit more about those later. They often have big holes in them in terms of areas that may not be covered, especially where longer term disability.
Cameron: Are You thinking that most people think their group plan is his big, solid, chunk of Cheddar, but really it’s just Swiss cheese.
Christine: A little bit there’s often holes and some group plans they may have more provisions than others. So the issue is, unless you really look at the contract and read the fine print which most people are not all inclined to do.
Cameron: Click to agree.
Christine: Well exactly right. So, that’s usually why you would want a representative or a professional who has experience in this area to take a look for you. So we have the Certified Health Insurance, specialist designation, which is kind of a good guide post. If you find someone with one of those, it’s CHS. for short it not quite, but it’s. It basically means that they’ve been specially trained in the area of income replacement, so that would be disability, critical illness, long term care and also group insurance. So they would know what to look for and what potentially could be missing if anything from your plan, but either way having a review done is a good way so that you have the information that you need to know if there is in fact something missing, and if there’s not that’s great, you can kind of go on your way, knowing that you are covered and protected,
Cameron: That doesn’t sound too bad.
Christine: So, let’s circle back and just kind of talk about what’s available. If you do nothing so we’re all familiar with EI, that’s a short-term benefit that pays under very specific situations. They’ve been broadened. I guess with COVID and I think they’re going back to somewhat more of a normal state, but it’s never meant to be a long term solution. Yea. I was always designed to kind of bridge the gap, so it’s to make sure that a paycheck continues to come in over the short term when someone has lost a job so not quit, but lost a job kind of by no fault of their own.
Cameron: So, they either get laid off or there a teacher or their road worker is out in the prairie, so they can’t work in the winter.
Christine: That’s right, yeah! So some people do use those provisions on a regular basis to supplement their income if they know that there’s going to be a gap in their pay cycle, but it was really designed, as kind of a last resort, to give you a paycheck for a limited period of time. Well, you transition and if that is kind of not once you’ve exhausted those benefits, then really the only other thing that you kind of have to look for or look forward to is CPP has a disability program. So it’s the CPP disability, and that is a program that you will only qualify for if you have a long term disability, it’s very, very difficult to get, and essentially your doctor and one of the fine folks over at tea. The program CPP disability program have to agree that, essentially, your disability is severe and prolonged enough that it’s highly unlikely that you’ll return to any form of normal paid labor in your career.
Cameron: I actually know someone who is on CPP disability, and it was excruciating hard to get accepted for flip side, though, because of how stringent it is, it and made it easier for all his other claims to go through one CPP accept in it because of how rigorously they test these things,
Christine: And that actually is a valid point. A lot of other providers will look at CPP disability as a test of whether or not you are considered seriously disabled enough. For example, like the registered disability savings program, the two are in a sense not formally, but in a sense, tied together in that your disability does have to be serious enough, that you were accepted into that program. But acceptance is one thing and I mean I know as well. Some people that take two or three tries. You know to kind of get into the program over a prolonged period of time where they may be denied, and then they try again a year later or two years later, just because things haven’t gotten any better.
Cameron: And all along the way they still have their bills to pay and groceries to buy gas to putting your car if you can even be mobile. Or at least just paying your utility bills, so you don’t freeze during the winter.
Christine: Well, that’s the issue. The bills don’t know you’re unable to work right, so the payments continue and you still have to pay the bills regardless. The bills don’t care the bills don’t know. Your landlord, your mortgage provider, it doesn’t matter right, so somehow the family is going to have to continue to pay for things in order to meet the same standard of living. So at this point in time, if someone finds himself in their position, usually the first thing that people will look at is liquidating assets and unfortunately, well. This is a good short term solution for some people, depending on kind of the cause and the nature of the disability. It can really set people back in terms of other goals or other hopes and dreams that they’d had. Usually you were saving for something, so usually you weren’t saving just to take all the money out and pay for a disability or to continue your pay checks, because you can’t go to work right now.
Cameron: No, you wanted to retire. He wanted to finish paying off your house. You wanted to buy a house or a car, put the kids through college or something else.
Christine: Right, and then sometimes people will find themselves in the reverse position where they actually end up going further into debt. As a result of this so they’ve exhausted their savings, they’ve exhausted the assets, which unfortunately means some of the long term goals are out the window at this point or have to be seriously reconsidered at a later point when earnings are back on track. But when someone starts taking on debt in a disability, it really is going to matter if the disability is going to be long term or reoccurring in nature, or if this is just a short term thing a couple years that you kind of have to work through and retrain and then get back on track. But even so you know, if it costs to let’s say you’re, making fifty grand beforehand and it costs you all of your income to maintain your household. Then I mean it’s very easy over a four year period to be two hundred thousand dollars into the hole right or adjusted for tax, of course, but the point being that, if there’s nothing in place, you find yourself creating the situation where you’re kind of eating your assets, you’re living off of things that you were hoping would support you in the future and not the other way around.
Cameron: Then you end up paying credit cards with credit cards with lines of credit and everything else, because once that daily day, income is gone, is hard to just suddenly replace it out of nowhere.
Christine: That’s right and when you look at CPP disability and what people actually get the basic amount of the disability, I believe, is only about five hundred and ten dollars. Right now give her take and then, on top of that you’ll get an adjustment based on how much you had earned and contributed into CPP over the years so based on the length of time you’ve been working and the amount of money that you’ve earned her year over your career. I believe right now, on average people get about a thousand dollars a month, which is just look at rent, you know.
Cameron: That doesn’t even cover a one bedroom basement out here.
Christine: That’s right and the maximum. I believe at this point in time. So it’s November 2021, it’s about fourteen hundred dollars a month and that’s really hard.
Cameron: It is hard because things like this are so sudden- and like you said it’s hard to proactively plan for this when all these other things are pulling out your attention, either physically, emotionally or financially, where we just don’t want to think about the possibility of something at this happens, whether or not we know someone that it happened to or not. We are just so stuck in the daily day paying the bills that is hard to set aside, above and beyond the three months emergency fund that next to no one has in the first place.
Christine: Well, most people are eternal optimists right and I think that that optimism can actually hinder people when they are thinking about income replacement, because it’s that whole mentality of it’s not going to happen to me. You know accidents, illness, that happens to other people, but the issue is statistically. It sure happens to a heck of a lot of people and I think that we are often caught by surprise when something does happen right because we think to a certain extent, were immune or were invincible or whatever it might be, especially if you’re, young and healthy. And I think one of the traps that we fell into personally was we had other goals that we were very, very focused on so for Cameron, and I paying off our house and becoming debt free was our number one goal. And it was something that we focused on four years and our desire and what we actually did was to put every extra dollar that we had towards our mortgage and towards our mortgage repayment. And I viewed and we kind of had looked at disability insurance Cameron had a long term disability policy at work. I have a personal policy, but we looked at his coverage and we kind of said okay. You know what this is probably good enough, nothing that we really have to worry about here.
Cameron: Exactly, it’s a Crown Corporation with a strong union. We did, we thought we’d, be fine.
Christine: Yeah, and essentially, we didn’t want to take any dollars away from our goal to put them towards the premium for a disability insurance policy. When we had the thought that okay, the probability of this is pretty low, you know we’re both healthy we’re both active people. What are the chances it would happen to us?
Cameron: Well, we thought that was pretty low, even though I had a bit more of a physical job, but then one day five seconds later and it happens.
Christine: Well and that’s it and, in our case Cameron, had a concussion at work and it took us about five years of retraining, so the other part of disability insurance that you have to consider is, if you can’t do your job, what else are you qualified for to do? What else would you want to do or what else by your experience, would you do and for a lot of people, especially people that might be in a trade or in a physical job? That’s might be it right. That may be the training and, if you’re no longer able to do a physical job, then where do you go
Cameron: With my injury? I had motion issues, so I couldn’t do the physical job and even after I left it took almost three years for the issues to go away. So then I had to go through my retraining process. I got my bachelors, I got my masters, but that was five years without a steady income on top of education cause that we just had to find somewhere to pay for it. So either student loans line of credit on the House Because, we didn’t think it could happen and if they did, it wouldn’t be. Take this long to recover get back into a new industry and we thought the plan I had in my previous employer would cover us better than it did.
Christine: That’s right. So that’s why at this point now we’re trying to talk to people and encourage people to take a serious look at their plan and if you don’t have a plan at all, please please, please find someone who is certified that you can talk to about it and that can give you some good advice about what you would be looking for in a contract. Especially these days, because contracts can be tricky. So again, if you don’t have insurance, I mean there are some other provisions out there. I mean we’re here in BC, there’s ICBC. If you are in a car accident. However, I mean they’ve recently capped some of the what they call lesser injuries in terms of what the pay out will be, and there is workers compensation benefits, but our experience, our personal experience with workers compensation and to no fault of their own. This is their job. They are trying to get people back into the workforce as soon as they decide that you’re ready. So it doesn’t matter if you are or not all that matters is, can you perform the duties of the occupation and if they decide you can that’s it so systems like workers, compensation or auto insurance, ICBC out here really, the goal is to keep people out of the courts right. They don’t want massive liabilities, tying up the court systems any more than they already are, so it’s essentially, they call them no fault systems because, rather than saying you know, this is your fault. You made an accident, or this is our fault. We were negligent, it’s just okay. How do we re have this person and get them back to work as soon as possible?
Cameron: Any work any job. Any task. Can you drool in front of a cash register when you used to be someone highly skilled kind of thing?
Christine: Well, and that’s, what’s scary in my mind about especially group plans, most group plans will have a change of definition and we’ll talk about definition of disability in a little bit, but it’s essentially it’s not cut and dry. There are different tears and different contracts in Canada, express them a little bit differently. Essentially, the gold standard is your own occupation. So if you have a disability policy that protects your own occupation, you’re protecting your skill set, you are protecting your years of experience, you’re, protecting everything that is uniquely you that you’ve developed over the course of your career and with an own occupation policy on an individually owned disability plan. You can actually work another job if you’re deemed disabled so deemed unable to work at your own occupation, but you could still change course, retrain and get back to work and own occupation is usually purchased by a more highly specialized individuals.
Cameron: A good example would be okay. How about Steven Strange from marvel the super wiz surgeon who couldn’t do his job any more. So he could have been covered for his surgery income, but the same time. You can go and get a job at UBC or another university and teach other people how to do that. Work you’d get your claim from your previous job, but you can still make a whole new secondary income as a teacher or doing something else.
Christine: That’s actually a perfect example and long term disability through a group insurance policy will not do the same thing. So if you get on claim and manage to stay on claim, essentially. You cannot work at all. If you can work, you’re no longer considered disabled so back to work you go.
Cameron: You could go from doing surgery to sweeping the floor.
Christine: Well, and this is the biggest problem with the group plan in my mind, and it’s simply that most group plans have a built in change of definition after two years. So usually, what you’ll see in a group product is they’ll, be looking at a regular occupation definition. So it’s a step lower than own occupation, but it does protect the most substantial duties of the job that you’re doing at your employer. That offers the plan so essentially after those two years have gone by, they will assess your ability to continue to do the regular duties full time of your occupation, and, if you can’t do them, it switches definition to what’s called any occupation. Now any occupation scares the pants off me. It’s absolutely terrifying as a definition, because unless you are very, very disabled and unable to do basically the daily functions of life. They can have you back at work in a completely different industry. Just like Cameron was telling us earlier. So I’ll say you know you can sit and you can talk on the phone great you’re at a call center, and you can stand on your feet good for you, you’re working, a cash register in retail. It’s very unfortunate that you’re wasting these very particular skills that you’ve developed over the whole course of your career yeah.
Cameron: One second you’re, a high powered lawyer next thing, you’re a greeter at Walmart how. This is how we could work if you can do anything of any kind of job they’ll, just slap you in or they’ll take away all your disability payments.
Christine: That’s right and there’s also a gray area that I think is really important to look at as well, and that’s the area of partial disability. So a group contract can offer partial disability, but it is very, very, very uncommon in practice to actually see them. So well, it’s not impossible. It’s highly likely that your coverage, if you do have a group plan, doesn’t have it and what does that mean? That means partial disability is usually defined, as you cannot work, fifty percent of the time and then there’s an al another provision called residual disability, which means that your earnings drop by twenty percent. So if you do not have this partial disability clause in place, any transition, so any disability that limits your ability to work, maybe a couple days a week, you would not qualify under that definition in the contract.
Cameron: So, with this extra provision, it essentially means you can go to work, locking for four hours and get paid for seven or eight.
Christine: That’s right and for business owners, the residual disability clauses a very interesting one. So let’s say your business depends on you to get sales and it’s less about you, clocking in and out at the end of the day and more about the activities that you do. You know the knowledge that you bring to the table that gets people to sign up and essentially pay your staff, pay your wages and put profits on the table if your profits drop, because even though you might be at work, maybe your capacity is a little bit less. A residual disability benefit will cover that and, like I said, the most common, so anything that we’re talking about today, it can be changed in different contracts. It really is the wild west out there, which is why I keep saying you got to look at the contract, but in most contracts, residual essentially means a twenty percent loss of income, so think of that as one day out of five.
So since we’ve kind of come to the conclusion that most group policies are essentially in some way lacking, let’s look at an individually owned policy and again, if there is such a wide variety of what’s available out there these days, what you would want to be looking for is, what’s called a non cancellable policy contract. What that means is, once you have the policy as long as you hold up your end of the bargain and continue to pay for it, then, essentially, the insurance company can not make any changes to the contract going forward. Now. This is the part that to me gets a little bit scary, there’s a few other levels of contracts that you can buy to day in the Canadian market place. So there’s guaranteed renewable there’s, conditionally renewable and there’s cancellable policies and, as the names suggest, the way that they work is, in some cases, they’ll be reviewing everybody that’s in the same class in the same category, and so let’s say you buy a policy and a hundred other people by a policy, and they have a similar occupation to you and a similar income to you. The Insurance Company is monitoring how many people are claiming on these policies on a regular basis, because.
Cameron: Those are the actuaries in the basement checking all the numbers.
Christine: That’s exactly those guys. So that’s what they’re doing they’re checking all the numbers. You know it might be a software algorithm these days.
Cameron: So it’s not the mole people downstairs anymore?
Christine: Maybe not they’ve been relocated. Oh No, so, essentially, what is happening with disability is its pooled coverage. So that means that the people who are not on claim that are actively paying premiums are helping to pay for the percentage of the people in that group that are not on claim. So that’s why the actuaries software or real people will be looking at how that a particular group is doing. They want to know are the premiums that are coming in enough to cover off the claims that were receiving or not, and I mean some types of contract. So if you have non cancellable, you’re locked in your good, the next step below that is guaranteed renewable and that’s where they can change the premium for the whole group. And okay premium change that doesn’t sound that horrible, but.
Cameron: It sounds like a normal day in the insurance industry.
Christine: Well, what you really want to be careful of is the types of policies where they can cancel coverage completely. So those are the cancellable policies but they’re. Also in some cases they will not. Let you renew like conditionally renewable policies. They might have something written into the contract that you probably didn’t read that will say you know. Let’s say you change your occupation or you’re, not working full time or you relocate somewhere outside of a specific area that they have defined in the contract like the province, they might say. Oh sorry, we’re revoking your policy, and the scary thing to me about that is if your health has changed, there’s no guarantee in the future that you can buy the same plan that you could buy today. and that’s essentially, when someone buys income replacement insurance. Not only are you protecting your pay checks, so you’re protecting your ability to retire to meet your hopes and your dreams, but you’re also protecting your ability to maintain your standard of living and disability insurance is incredibly difficult to self ensure because it’s based on money that you haven’t earned yet. So how do you save a dollar that you haven’t made yet, especially when most people need all of the money that they have to pay the bills, and this is what disability insurance is really protecting. We want to make sure that your standard of living does not change or that the people that are depending on you, so that might be a spouse partner. It could be kids, you know, how do you explain to the kids that we have to move to back to mom and dad’s or grandma and grandpa’s. Or, to you know, a lower income neighborhood.
Cameron: But it’s really cold where Grandma and Grandpa live.
Christine: Well for us. It is but you’re protecting those future dollars. So if you earn about fifty thousand today, it’s about 1,750,000- let’s say you’re thirty years old and you’re, working to sixty five, so you’re covering the rest of your career and in that same example, for a thirty year old working to sixty five. If you are earning a $100,000 to day, that’s $3,500,000 now a disability plan will not cover a hundred percent of your wages because there has to be some incentive for you to return to work. So there’s always going to be a little bit of that, but you can usually get pretty close to the seventy percent range and essentially, what you’re wanting to do is make sure that your mandatory bills, all of the things that go into your lifestyle, now can be covered with the amount of protection that you have in place. Now I mean in our story with our obsession with paying down our mortgage, we had already been in the habit of essentially saving half of our income. So we were two people both earning about forty grand when we started.
Cameron: I was working at the post office during the day and then the last two, three years I was writing articles for Seeking Alpha in the evening just so we could have a bit more disposed income just to throw towards that debt.
Christine: Right, but we survived because we were used to living off of one person’s salary. So if you’re a single person there’s no safety net, it’s really just what you’re able to do for yourself, and so I think income replacement is absolutely crucial in those positions and if you are in a partnership or in a marriage where you have kids, there’s people financially dependent on you and you need both of those pay checks to maintain the same standard of living. Then I mean absolutely that’s a no brainer to me if I know that I can pay my bills and I can protect my family and protect our standard of living and still stay on track to achieving my goals. For me, that’s powerful. That’s incredibly empowering that, even if I can’t go to work, I can still provide for my family so just quickly a couple other things that you would be looking for in a disability policy is, you would want coverage that pays to your retirement age and that covers your own occupation or the next best thing if own occupation is not allowable for your particular industry, all the way to the age that you think you’ll retire.
So for most people, that’s age, sixty five- and this is very, very important. This is how you will get around those changes of definition that you see in a group plan where it’s going from protecting a regular job to any job. What you would essentially do, let’s say you had a group plan. You could keep your group plan and cover yourself for the first two years and then maybe by a plan that starts two years after your disability, to fill that gap in your own occupation or regular occupation as it’s defined for you all the way to sixty five, that’s how you know you’re safe, no matter what and disability insurance coverage is twenty four hour coverage. So it does not matter where, when or how you’re injured. So for the other programs that we talked about like workers compensation. Obviously, you have to be injured at work or auto insurance. Obviously, you have to be in a car accident. Unfortunately, that’s not always the case. I mean there’s sports injuries, there’s things that happen to people.
Jeez. I had a very close friend of mine, we had some really bad wind and rain and flooding over the past week and a friend of mine was just driving down the road in Victoria and a tree fell on her car and thank God she was okay. But that’s how random and chaotic and unpredictable life can be. You know a few seconds and she might not have been okay and that’s absolutely terrifying and that’s why we have these products, because you just don’t know you can do absolutely everything right and by no fault of your own, something goes wrong. And that something like Cameron said can be five seconds and it can change your plans for a lifetime. So another thing that you might want to look for if you’re looking at a disability policy, is you want to look at how they’re treating reoccurring claims?
So, let’s say you receive a payment for a claim and then you get better you’ve rehabilitated you’re back in the workforce and then you’re injured again. What is your policy going to do? Are they going to have a cap on how many times that they’re going to pay you for that particular injury? Are they going to say? Okay, you know what we’re only paying you for two years or we’re only paying you for five years and then we’re done we’re off the hook. It’s in your contract. You want to make sure that there are not very many limitations Some of those limitations can be contractual. So there are a lot of policies on the market to day that will exclude certain types of either common or harder to define illnesses. So we’ve seen exclusions on entire contracts for mental health, and that has nothing to do with whether or not there’s something in your application in that area. The contract just says we do not. We do not look at this type of illness period. There are other contracts in the market today where they might not look favorably at soft issue damage just because it’s more common, it can be more reoccurring. I think they say your back and mental health are the two top claim areas for disability, or at least that’s what it was a few years ago.
Cameron: It’s probably more so now, especially for the mental illness claims, but even the back thing. That’s they probably cut that off, because that can flare up over and over again over time, which is like what you said is good to find some of these plans. That will kick back on to an original injury for a few more months longer if it’s possible, because it’s one of those things where you can feel fine today feel fine for six months. Then you get out of your car the wrong way and you’re back on the floor.
Christine: Well, and you want to make sure you’re protected until you retire, because this is your ability to pay the bills and it’s your ability to save for the future, so that alone makes it all worth it. Other provisions that I encourage people to take a look at when they’re looking at their policy cost of living adjustments. I mean we’re going through a major period of inflation right now. Our Grocery Bill just keeps. I shake my head every time we go to the store, we’re buying like cereal and bananas, and I don’t know how. But a couple hundred bucks seem to be gone every week where it was substantially less. It feels like even a year ago, but I mean times, have changed: There’s supply issues, there’s supply chain issues that are compounding the problem, as well as a whole bunch of extra money floating around in the system that wasn’t there a year and a half ago before COVID. But essentially a cost of living adjustment or a COLA clause t what that will do is while you’re on claim, so it doesn’t apply until you’re on an active disability claim. It will have a specified percentage or it would tie it to CPI, which is the Consumer Price Index, so as the cost of goods gets more expensive, the benefit that you receive is not stagnating. So you’re, not finding yourself with fewer dollars to try and chase expensive goods or ever increasingly expensive goods.
Cameron: It couldn’t even be that it could also just be you sat on this contract for ten, fifteen years and a jug of milk was four bucks when he bought the contract, but now it could be eight or nine dollars.
Christine: That’s right. You know things do just seem to get more expensive over time. So that is something that you’d want to take a look at, and that also brings us to the next one, which is the future insurability option. So, if you’re in a career where you anticipate that your earnings are going to be going up over time, then this is something that you want to have it’s a rider. So it’s just something that you add on to a policy and you’re saying that I want to lock in my health today, because I don’t know what my health is going to be to morrow. So I want to lock it in to day, and I want to have the option to buy x amount more insurance. Should my earnings go up during a specified period of time, so you’re essentially betting on yourself doing well and you’re, saying I think my earnings are going to go up and I don’t want to chance it. You know, I don’t want that ten or fifteen years to go by and you know I’ve had an injury or I was in a car accident or something went wrong. And now, if I were to apply after something has gone wrong, then I may not get a contract or I might get a contract with limitations on it, where it would not pay to cover something that had happened.
Cameron: Yeah, because that helps cover you, like, even like the whole stereotypical. I started off in the mail room and made my way up to management. You want to get hurt and still by making the mail room wages. Or how does it work where you have people changing jobs every five years they could go from one salary to another just by switching companies, rather than just trying to drag it out for one to two percent increases every year of their old place.
Christine: That’s right, and I mean when people look at the premiums because, as you will add, on these different riders, these different extras, it can increase the price tag quite a bit on these things.
Cameron: Wait you’re saying the insurance company won’t give you this for free?
Christine: They do not.
Cameron: Not out of the goodness of their little heart. No, no goodness out of your hearts. This is something you buy for yourself and you view your premium dollars as protecting your goals and your dreams. That’s how I’ve had to look at it. That’s the only way I can justify paying what we pay now for insurance. So sometimes just to handle the increased costs. Some people will look at a few features. I view them as more optional they’re, definitely not for everyone, but there are return of premium features that you can buy. It does make your policy more expensive, but they will give you back a portion of the money if you don’t claim after a certain number of years, essentially it’s usually eight years and what it means is you’re, paying a little bit more into a contract, but it’s sort of like force savings. You really have to look at the numbers on that to make sure if it makes sense, there is also a return of premium on death. That is, can be added to a lot of these contracts .What that one does is, should you pass away prematurely the premiums that you’ve paid will be returned to a beneficiary that you name. So again, any time you’ve got a return a premium situation, it’s going to be costing you a little bit more, but that’s some people like the peace of mind, knowing that they’re not just feeding money into a dark hole.
Cameron: They’re, not just endlessly pouring money into something that well, on the one hand, they don’t want to claim and get the money back out of. But at the same time they want to feel like they just threw it away for nothing.
Christine: It’s like every other type of insurance that you have it’s exactly that you just pay your premium. You know insurance is all about either protecting yourself or protecting someone else. So it’s just coming to terms with this is what it is. This is what it costs, and this is, if I want to have this protection- that’s what it takes.
Cameron: So I am new to this whole industry and you, and over and over you talking about different contract here different contract there. How do you get a grasp what’s actually out there and what’s available, and how do I know which company to go with?
Christine: Well, I think it’s incredibly important to work with an independently owned and operated firm. So that’s something that we are over at Braun Financial, and what that means is that we’re contracted with pretty well all of the major insurance companies across Canada. And that allows me to go through all the fine detail for you. So we’re not worried about getting the wrong contract or missing out on an important feature, and I mean there’s more than in the interest of time that we’ve even gone through today. But I mean we could talk about this for hours and frankly, you probably don’t want to listen that long. So the bottom line is if you work with an independent firm and, as I mentioned before, you want to work with someone. That’s actually specializing in this area of living benefits, because it is the wild west out there. So an independent firm will get you access to a greater range of product and selection, and that is important in making sure that we’re able to buy the right product for you.
Cameron: Because I’m guessing each company, a kind of has their pros and their cons and different people would be served best by different companies. The way this seems to be laid out.
Christine: That’s right. Different companies will focus on different market places, so some companies want to insure doctors. Other companies are more about the trades people. You know, maybe people that are driving a truck for a living things like that and some are in between, but it’s really understanding the nuance difference of who is this product built for that helps us rather than just walking into.
Cameron: Whatever one you see first on the street.
Christine: Well, that’s right, a walking choosing one randomly! You know unless you have that detailed knowledge about who they represent, what their contract will do for you, how it handles claims. I mean there’s also a really important note about how companies will pay claims. Some companies will handle claims internally. Others will maybe shift some of that to another their called reinsurance. So they’ll be another company that’s backing what they do. So it’s it can be helpful in some cases to go for a company that handles their own business in house. Although it’s not always necessary.
Christine: So the last thing that I want to say, that’s also a benefit of buying. Your own policy is, if you’re paying for your premium out of your own pocket, so not an employer paying it for you, but you’re paying for it yourself, because you’ve bought your own contract. That actually makes your benefit tax free and when you’re looking at ways to make those dollars on claim, go farther. It’s kind of like a little built in bump up that you can give yourself. So there is some benefit to doing it and paying for it yourself
Cameron: So that kind of indicates how you’ll never get a hundred percent of your income back from what you get from employer because you’re getting this money tax free. So it makes it a little easier to pay the bills going forward.
Christine: It does make it easier, so you’ll still not be at the full, a hundred percent of your wages, but yes, you’re, right you’re used to receiving after tax dollars when taxes are withheld from your pay check and in this case no taxes right so no withholding required. and when you are considering when you’ve purchased a policy and you’re looking at going on claim all policies have something called an elimination period. What that is.
Cameron: sounds pretty threatening
Christine: It’s not scary, but what it does mean you have to wait and usually an elimination period is set at ninety days. So that means that once you’ve had an event that it means you can’t work or you’re, not working right now, you’ll have to have savings to bridge the gap between when you apply for your claim, your claim gets processed and accepted, and then your elimination period begins. So it can actually be quite a bit longer than the three month which is kind of the standard provision. So we really encourage people to make sure that they have that Emergency Fund just to make sure that the bills can be paid.
Cameron: And I’m guessing to that. The longer this Elimination period is the cheaper, the contract is right?
Christine: That’s exactly it so like we were talking about with group policies and having an individual policy start after the two years. What we’re really doing is we’re having a twenty four month, elimination period, so you would technically submit your claims for both and you would just start waiting until the new benefit pays. But getting a claim accepted is all about your doctor and the Insurance Company, agreeing that you meet the definition in the contract, and that is why all of this Jibber Jabber about contracts and definitions is so important, because that is all that they will look at. Does your doctor agree with the Insurance Company that the event that you’ve had is covered in the policy that you have and if it is that’s, when you go on claim so protect yourself, please seriously consider buying income replacement insurance and keep in mind. Disability Insurance protects your pay checks. It protects your standard of living and, if you set it up correctly, it will protect your ability to do your job for the rest of your career. So it will protect your earnings over your entire career, and that is so, so, so important.
You know. We hope that you can continue in your career, but heaven forbid. If something happens like it happened for Cameron where you have to make a sudden switch. You want that income to be there. You don’t want a few seconds to leave you with years without income. We’ve made that major mistake in life. For you and now we’re here to tell you find a professional find an independent firm to work with. You can check us out at Braun Financial dot com if you’re in the BC area. We love talking to people about this and helping them out. but if it’s not us just find someone qualified and they’ll be able to walk you through all the pros and cons all the costs, all the different features. there’s more than what I’ve gone over here to day and it’s so widely varied. So please get someone who knows what they’re doing?
Well, that’s our time for today. So hopefully, we’ve been able to give you some information. that’s valuable and that’ll help you out protecting your own career and protecting everything that is unique to you and helping you sleep at night. Knowing that, no matter what happens, you can take care of the people you love all the best until the next time.
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