Relying on your spouse’s benefits? Be careful.

Many self-employed professionals and some employees who do not have employee benefits rely on their spouse for health and dental coverage. Are you aware of the limitations of your spouse’s coverage?

The thought of paying for your own health and dental coverage, and short-term or long-term disability can be daunting. Good news! If your spouse has group benefits, then you may be covered under your spouse’s benefits. But there is a caveat — a huge, potentially disastrous caveat! Your spouse’s group benefits may not cover your short-term or long-term disability. Is that important to you? 

Here is an old analogy: If you owned the goose which laid the golden egg, which one would you protect first? The goose or the golden egg? Naturally, most people will choose the goose. You can lose the golden egg, but as long as your goose is still laying more golden eggs, all is well. 

Let’s apply that analogy to us: Many people choose to protect the golden egg (house, car, mortgage, credit card, cell phone) instead of the goose (your ability to earn income). If you don’t have personally-owned disability coverage or disability coverage from your employer, then this scenario describes you.

A favourite question that I pose to clients is: “What is the biggest asset you own?” Some people will say their house, car or investment account. In reality, your earning power is your biggest asset unless you are ready to retire. You are the goose; the ability to keep laying those golden eggs is a huge intangible asset. What is it worth? How much of your monthly income would you give up to protect that asset? 

The below table provides a big picture view of what is at stake at various stages of your working life. As you can see, your earning power has great value, particularly early in your career when you have many years of potential employment ahead of you. Your earning power is your most important asset. Protect it!

Potential earnings table for individuals to age 65

Other considerations

Pay attention to the language and definitions used for “disability.” There are significant differences between “own occupation,” “regular occupation,” and “any occupation.” Ask your life and health insurance advisor if you are unclear.

Non-Evidence Maximums (NEM): Are you an executive? The NEM is the maximum limit of coverage available to employees within a group benefit plan without the need to provide medical evidence of insurability.

What are the odds? It won’t happen to me!

  • According to the Commissioners Individual Disability Table A (1985), a 35 year old has a 50 per cent probability of a disability lasting 90 days or longer.
  • According to the Public Health Agency of Canada’s Chronic Disease and Injury Indicator Framework, the percentage of Canadians living with cardiovascular disease by age group are:
  • 20 to 34 years: 0.7 per cent
  • 35 to 49 years: 1.5 per cent
  • 50 to 64 years: 7.1 per cent
  • 65 years and older: 18.3 per cent

To qualify for the CPP Disability Benefit you must sustain a severe and indefinite mental or physical disability, and be unable to work at any occupation. If you do qualify, benefits are minimal (maximum $1,290.81/month).

Speak to your life and health insurance advisor before making any decisions on disability coverage.

Disclaimer

The views and opinions expressed in this article are those of the author and do not necessarily reflect that of CPA Canada.

This article is provided for information purposes only and does not constitute an offer or solicitation to buy. The information contained in this article is believed to be reliable, but cannot be guaranteed. Readers are urged to obtain professional advice before acting on the basis of material contained in this article.

Keep the conversation going

Most people recognize the need for life insurance, but many do not understand the need for disability insurance. The fact is, when you are disabled because of an illness or injury, your income stops — but your bills don’t. Do you believe that your ability to earn an income should be protected? Post a comment below.

About the Author

John Kitcher, CFA, CPA, CA

John is a life and health insurance advisor with Desjardins Financial Security Independent Network. He is licensed in the province of Ontario. john.kitcher@dfsin.ca 613-829-7874 ext. 288