Skip to main content

How Much Disability Insurance Should I Own?

First of all, if you are reading this blog you have some interest in protecting your income in the event you become disabled. Disability insurance  (DI) is often referred to as Income Replacement Insurance, but in reality it’s not the income people want to protect; it’s their life style and assets they wish to protect.

While many business owners and employees are covered through Group Insurance at work, many self-employed business owners and professionals are either not covered or fail to keep their policy in pace with their growing income year after year.

The amount of coverage one owns with Group Insurance is often predetermined by a formula or a set amount in the group contract, set by your employer. If this is the case, you often don’t have a choice or voice to change the amount- even if the monthly benefit is not enough.

People without “Group” Insurance can determine the actual amount of coverage they want to purchase up to an “issue limit” based on their insurance company’s guidelines.  Generally the amount offered to professionals and business owners offered in the “issue limits chart” is satisfactory.

The coverage available for those buying a policy personally is based on your net income before tax. As your income increases, the coverage available as a percentage of your net income decreases. The theory here is that disability coverage is not necessarily intended to replace your income totally; if it did, the motivation to return to work diminishes.

Let me illustrate an example: if your net income (before tax but after business expenses) were $75,000 a max limit might be around $4,200 per month tax free. If your income were $150,000 the max would be around $7,000 per month.  



An immediate question that arises is: Do I need the maximum limit? Also when making this decision, other important questions may arise, such as: Does your spouse produce an income? What are your monthly fixed obligations? What is the lowest amount you could live on, and would you be happy with that amount?  Do you have children and what are their expenses? At the time of disability would you want to lean on your savings or other assets, or leave savings for retirement purposes?  Do you have other non-earned income? These are only some of the questions you should ask yourself, but the answers help make the determination.  

If a disability lasts for 90 days or longer, the average person will remain off work for 2-3 years. If your income was $75,000 per year and you have a growing family, your availability to cash and credit may be exhausted very quickly without the maximum disability coverage lending credibility to the theory of holding as much disability that is offered.

So in short, own enough to maintain your life style.

Disability plans can be designed to fit one’s budget and provides coverage that protects you in the event of a long or short term disability. With everything on the line you need to protect everything you work for.

If you are in Nova Scotia and would like some insurance advice, please contact Corry Collins:
corry@maritimewealth.com
902-444-7000

Please like, share and comment on my newest post!



Comments

Post a Comment

Popular posts from this blog

Attend MDRT as an Aspirant or Manager

The Million Dollar Round Table (MDRT) holds its annual meeting this June in Orlando. Members from around the world will be in attendance. The annual meeting is the flagship event for the MDRT. Top advisors from over 70 countries meet and share world class ideas on how to grow your business and how to develop a thriving practice. The main platform is always full of motivation, business ideas and stories that may change your life. Ten thousand people are expected this year. The focus sessions are detailed sessions drilling down on the specifics of specialized subjects. Members and non-members are invited to speak on their area of speciality. Networking with leading industry people (who become friends) is one of the highlights. The mentoring program at MDRT provides a chance for non-members to attend as a guest.  The rules can be found at https://www.mdrt.org/membership/mentoring/ , but here are some of the particulars: The MDRT Annual Meeting scheduled for June 4-7, 20...
Post a Comment
Read more

Created by: Corry Collins - Top 10 Fall Financial Checklist - Save Time, Money and Tax.

Summer is not officially over until September 21 st . However, “back to school” week is a sure sign of the fall! The fall is a busy time in our financial planning office, as people seem to use this time of year to tidy up many small items concerning everything financial. It might also be a good time of year for you to do the same, especially if you aren’t in this “fall time” habit. Many people have a list of items to refer to when it comes time for financial clean up. Here is a typical list:       Update beneficiaries on your insurance policies’ if required.       Increase your disability coverage if your income has increased.       Review your RRSP investments against your current Risk Tolerance questionnaire.       Top up your Tax Free Savings Account       Increase your RRSP deposits by 10%       Question your bank to see if you can save money by renewing your mortgage ea...
Post a Comment
Read more

How Long Will 1 Million Dollars Last?

Once upon a time, a million dollars was a large sum of money. If you had it, you were a millionaire, and everyone was jealous. Today the question is often asked: “if you won a million dollars, would you quit work?” Well the answer depends on several factors like your age, your need for money, and even your health. To answer the question how long would one million dollars last, let’s look at it this way: How long will $1,000,000 produce an income for you before it runs out? Let’s say you needed to take $60,000 as an annual income to spend. Let’s also say that you wanted to increase that $60,000 by 2% per year just to keep up to inflation. To run the numbers, we would assume you wanted to invest your $1,000,000 in a relatively secure place. The rate of interest would be around 1.5% if you wanted a guaranteed return, or maybe a 5% return if you wanted to assume some risk. For argument sake, let’s give you 3.5% over time, and income tax at about 25%. With the above parameters, you...
Post a Comment
Read more