Canadians work hard to protect what matters most to us: our families, our homes, our lifestyles. But we’re less likely to protect what may be our most important asset: our ability to earn an income. And that’s a problem when many of the things that matter to us, like our families and lifestyles, depend on you being able to maintain that ability to generate income.
Consider that most Canadians find automotive insurance important in protecting their vehicles, which, on average, cost $33,000 when new.1 Canadians also place a lot of value in protecting their homes, which now cost, on average, more than half a million dollars. And who can blame them? Canadians love their cars and their homes and, together, these two expenses typically dominate the average family’s annual budget.2
The high cost of a lost income
But the cost of having a vehicle or home affected by fire, theft, flood or some other kind of threat pales in comparison to the financial challenges presented by loss of income. The most recent statistics on Canadian salaries show that the average individual earns about $50,000 each year. Over the course of a 30-year career, with a 2.5% increase each year to account for inflation, that’s roughly $2.5 million, a huge amount of money for the typical Canadian family. And that number skyrockets if you assume that, thanks to career advancement, an individual’s annual salary could increase from $50,000 to $75,000 and beyond.3
This research highlights the financial challenges posed by losing an income due to disability. Not only can a disability rob us of the ability to earn an income, it can result in additional costs, such as having to pay for in-home care, medications and modifications to one’s home to accommodate a disability (such as building wheelchair ramps).
How likely are you to experience a disability?
The chances of becoming disabled in this way may be greater than you think. Research shows that 1 in 4 Canadians will be unable to work due to illness or injury for 90 days or more before they reach age 65.4 Should this situation last longer than 90 days, its average length is nearly 6 years.5
That raises an important question: how would your family meet such a challenge? Do you have the savings to live off for months, even years? While there are government programs that can help in this situation – such as the Canada Pension Plan (CPP) Opens a new website in a new window or Workers’ Compensation Opens a new website in a new window – you’ll need to meet certain conditions to qualify for them. For example, to receive CPP benefits, your disability must be severe enough and prolonged enough to prevent you from being able to work at any job. As for Workers’ Compensation, it will only cover disabilities that result from workplace incidents.
How much can you receive through disability insurance?
This is where disability insurance can play a role in helping you and your family maintain the lifestyle you’ve become accustomed to. In essence, it’s insurance that works when you can’t, and in doing so it can give you the money you need to pay for critical expenses, from your mortgage to car payments, grocery bills and utilities.
Should you qualify, disability insurance can help replace some of your lost income. For example, someone earning $50,000 per year may be eligible to receive a monthly benefit of $2,975, representing an annual income of nearly $36,000. If you earn more, such as $120,000, you could qualify for a monthly benefit of just under $6,000, representing an annual income of $71,100.6
What if I have disability insurance through work?
While it’s true that some Canadian employers offer some form of disability coverage, it may not provide the level of protection necessary to replace a sufficient amount of your income. Additionally, it’s important that you don’t confuse critical illness insurance with disability insurance; while some employers offer coverage for one or the other, far fewer provide both options.
You can learn more about disability insurance, including how it compares to critical illness insurance, by talking with a financial security advisor Opens a new website in a new window with Freedom 55 Financial.
1 Jeremy Cato, "Savvy shoppers knock about $4,000 off car prices in Canada,” Opens a new website in a new window The Globe and Mail, May 30, 2014.
2 On Canadians’ love of their vehicles and driving: Maham Abedi, "More than half of Canadians plan to keep driving past age 80: survey,” Opens a new website in a new window Globalnews.ca, Aug. 2, 2017; on the average price of a Canadian home: "National Price Map,” Opens a new website in a new window The Canadian Real Estate Association, Nov. 24, 2017.
3 "So, how much are we earning? The average Canadian salaries by industry and region,” Opens a new website in a new window Workopolis.com, Nov. 30, 2016.
4 Canadian Institute of Actuaries (CIA) 86-92 & 2012 Society of Actuaries – Individual Disability Experience Committee Table.
6 These examples are for illustrative purposes only. Situations will vary according to specific circumstances. Actual amounts are subject to your age and occupation. Some limitations apply.
This information is general in nature, and is intended for informational purposes only. For specific situations you should consult the appropriate legal, accounting or tax advisor.
Talk to an expert
Not feeling confident in your finances? You can talk to one of our financial security advisors who will work with you to craft a financial plan tailored to your needs.