Many financial advisers and counsellors recommend saving a few months expenses to cover contingencies such as job loss. Insurance coverage for income loss may be an alternative for long term external factors beyond our control such as the current COVID-19 pandemic. There are various types of insurance that may reduce your risk to enable you to continue to meet your living expenses and credit payments.
Employees with benefits
If you are fortunate, you may work for an employer that provides disability plans for loss of employment due to illness or injury resulting in your inability to work. It is important that you understand what coverage you have as plans will vary in coverage and they do not generally continue once you leave your employer.
Employees without benefits and Self-Employed Individuals
If your employer does not have benefits or you are self-employed, you may wish to consider purchasing insurance. I have outlined below some basic types of insurance coverage that may be of benefit to you:
- Life insurance. This insurance provides a payout on your death. A life insurance policy may be a cheaper alternative to the insurance regularly charged by banks on mortgages and lines of credit. Costs will vary on factors such as age, gender, existing health conditions, and level of coverage.
- Disability insurance. This insurance protects you in the event of injury or unexpected illness that prevents you from working. It may be purchased for a specific loan or payable to you as disability income at approximately 60 to 70 percent of your earned income. It is important to understand what the definitions of disability, return to work, period of coverage, exclusions such as pre-existing conditions, and waiting period are in the policy. If you are permanently disabled and have paid into CPP, you may be eligible for CPP disability coverage instead. Most insurance providers will reduce your disability benefit for CPP disability.
- Critical Illness Insurance. Critical illness insurance covers life-altering illness such as cancer, heart attack and stroke to provide a lump sum payout. The coverage is limited to the illnesses specified in the policy, excludes pre-existing conditions and is subject to a waiting period. Costs will vary dependent on factors such as level of coverage, illnesses insured, and age.
- Credit insurance. This may also be referred to as debt insurance or payment protection insurance. Unlike the prior 3 policies, it is purchased from your bank to cover specific debt in the event of death, disability or in certain cases loss of employment. The premiums are based on the amount of debt. It is common for mortgages and lines of credit but can also be purchased for credit cards and other loans. It is important to review what coverage you may already have to cover your debt to avoid unnecessary premiums.
- Credit monitoring and identify theft insurance. Credit monitoring and identity theft insurance cover expenses if you are defrauded. An Association of Certified Fraud Examiners survey conducted in late July to mid-August found 77% of respondents noted an increase in fraud. If you believe that you are at risk, you may wish to review this type of coverage. It may be included or offered in your tenant or home insurance policy at a less expensive premium than those offered by credit bureaus and banks.
An insurance broker can provide you with an independent review of your insurance options to enable you to make an informed decision based on your level of risk, budget, and financial circumstances.
To learn more about your insurance options in the era of COVID-19, watch this upcoming webinar on October 14th conducted by CPA Canada.