Smart Money: Disability Insurance is the Most Important Part of a Comprehensive Financial Plan

A good disability insurance policy is often one of the most overlooked aspects of financial planning

I’m not very supportive of generalizations or rules of thumb when it comes to personal financial planning. Everyone has their own goals, resources and risk tolerance, so one-size-fits-all solutions are not always optimal.

But let’s say, for the sake of discussion, of all the different components of financial planning, we wanted to identify the most important one.

What is the most important concept in financial planning? This is the type of question that will generate different answers.

Some would say that the most important thing is to establish an emergency fund. It would be money you could get your hands on quickly if you really needed it. A classic example would be setting aside enough to cover about three months of essential expenses.

Others might say that the most important thing would be to contribute to your registered retirement savings plan. Someday you’ll want to stop working, and that day the money will have to come from somewhere. RRSPs can be a compelling strategy to prepare for retirement in a tax-efficient way.

Still others can praise the wonderful benefits of the Tax Free Savings Account. The TFSA offers impressive flexibility and offers unique planning options that can minimize not only taxation but also clawback of income-tested benefits.

Do not mistake yourself. All of these things, and more, are solid and valid concepts.

But if I had to choose just one thing for my financial planning concept, I would say it would be having a proper disability insurance policy, which will replace your income if you can’t work due to illness or illness. injury.

Think about it. Pretty much everything you work for – retirement, a real estate purchase, paying off debt, a family vacation, a new vehicle, whatever – depends on your ability to earn an income. Take away that ability to earn income and you will see how quickly your priorities change.

Ironically, a good disability insurance policy is often one of the most overlooked aspects of financial planning. You may have noticed that I referred to an “appropriate” disability insurance policy. I say this because not all disability insurance contracts are the same.

You could have disability insurance through your group benefits. You can have disability insurance on your loans. And these types of disability insurance are better than no coverage at all.

But often group disability coverage, and in particular mortgage loan insurance coverage, may have restrictive covenants in the contract. This is one of those circumstances where it pays to read the fine print.

Here’s an example of how not all contacts are created equal and why it’s important. One of the definitions of disability is the definition of “own occupation”, which will pay an income replacement indemnity if you cannot perform essential duties of your usual occupation. Compare this with the definition of “any profession”, which will only pay if you cannot do work that you could reasonably be expected to do. “Personal occupancy” offers you much better protection than “any occ. “

Here is what I mean. If you’ve seen the movie Dr strange you probably remember that spectacular car crash at the start of the film where surgeon Dr. Stephen Strange loses the use of his hands.

If Dr Strange had an occupational disability contract, he would receive a tax-free disability benefit because, without the use of his hands, he cannot operate. If he had a full occupation disability contract, he would not be eligible for income replacement because he could still do something else.

Now, if disabilities were rare, I wouldn’t say that’s the most important thing. But they are not uncommon. For a 35-year-old non-smoker man, the probability of being disabled for at least three months before the age of 65 is 36%. For a 35-year-old non-smoker, they are 40%.

Would you like to suffer from a serious illness or injury and then have your group or mortgage insurance provider say, “Yes, that’s a shame about your situation, but there is still something you can do? thing, then we do not pay “?

Talk to an insurance professional about the appropriate disability insurance as part of your comprehensive financial plan.

Brad Brain. CFP, RFP, CIM, TEP is a Certified Financial Planner in Fort St John, British Columbia. This material is prepared for general distribution and may not reflect your individual financial situation. Brad can be reached at

About Antoine L. Cassell

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