The Big Dilemma in Life Insurance: Income Protection vs. Asset Protection

Lorne Marr
by Lorne Marr February 27, 2017 / No Comments

This is a huge decision faced by many Canadians looking to buy life insurance. Unfortunately, the majority of the population doesn’t even know this dilemma exists. Most of us just pay our monthly life insurance premiums, never thinking that there could be a great deal more we could be doing for our families, and ourselves. Life insurance is a way to help the loved ones we leave behind.

But, what happens to our loved ones if we become disabled? Suddenly, we have no more income and can’t pay the bills. Statistics show that approximately 70% of working Canadians don’t have enough savings to cover one month of living expenses without a pay cheque and more than 25% could not go one week.

Income protection insurance, also known as disability insurance, replaces a percentage of your income in case you are unable to work for a period of time due to illness or injury – a percentage of your income, not the cost of special treatments or any other expenses you may incur.

Explore other types of coverage

Another type of living benefit, critical illness insurance, pays a one-time lump sum if you are diagnosed with a particular critical illness. This money can be used to pay for treatment, medication or anything you need.

Life insurance on the other hand, protects your assets and covers your liabilities enabling your loved ones to pay off your debts when you die. Sufficient coverage will keep them living in the style they are accustomed to.

What you should know about income protection

Disability insurance can be tricky. Consider these features when choosing the right one for you.

  • Coverage that can’t be cancelled. As long as you pay the premiums, the insurance company guarantees continued coverage and no premium increases until the age of 65.
  • Own occupation rider. This means that if you have a significant amount of training and experience invested in your occupation, you can work in a different type of job and still be entitled to your disability benefits.
  • Cost of living rider. You can add this rider to your policy to cover to ensure your monthly benefit keeps up the cost of inflation.
  • Residual disability benefit. If you are not totally disabled, you could be entitled to a residual disability payment. You can choose a partial disability payment or a residual disability benefit, whichever is greater.
  • Future income protection. This allows you to increase your coverage to keep in line with income increases. However, you will have to prove the increases are justified.

Prioritize your needs

A critical illness can come upon you without notice or invitation, seriously disrupting your lifestyle. Once you have been diagnosed, finding insurance can be difficult, if not impossible. The best time to think about insurance is when you are young and healthy. You will get the best rates and the best coverage. And with the right policy, you can keep this coverage for many years to come.

Life insurance is a universal need for anyone who has dependents or assets to protect. However, your ability to earn a living is your biggest asset. Accidents happen. In a fraction of a second, you could be out of work for weeks, months or even permanently. Through no fault of your own, your income stream can be cut off without notice. This is why disability insurance should be prioritized over other types of living benefits insurance or life insurance.

Lorne is a Certified Financial Planner (CFP) and started in the life insurance industry in 1993 after completing his MBA at the University of Windsor. He has won numerous advisor awards and has appeared in The Globe and Mail, Toronto Star, National Post, Toronto Sun, Investment Executive and Money Sense magazine.

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