Income protection insurance offers a dependable income stream when you cannot work due to sickness or disability. This financial assistance continues until you return to work or reach retirement age.
Whether employed or self-employed, this insurance is a safety net during income loss caused by illness, injury, or disability.
Before you decide to purchase income protection insurance in Canada, it’s essential to grasp its nuances. In this blog post, we will delve into the specifics of income protection insurance, including what it covers, what it doesn’t cover, and associated costs, and provide guidance on selecting the ideal policy for your unique circumstances.
What is Income Protection Insurance?
Income protection insurance, also known as disability insurance, is a type of insurance that replaces a portion of your income if you cannot work due to injury, sickness, or disability. Its primary aim is to ensure you can maintain your current standard of living during such times.
Similar to other insurance types, obtaining income protection insurance involves applying for it and agreeing to pay a monthly premium. As a result, your insurer will provide you with monthly tax-free payouts to help cover a portion of your income when you cannot work.
The specific amount you receive through income protection can vary, typically ranging from 75% to 90% of your net income, depending on your policy. It’s important to note that this coverage ceases when you return to work or the benefits period specified in your policy ends.
What Does Income Protection Cover?
Income protection insurance is a crucial financial safeguard that comes into play when you cannot work due to sickness, injury, or disability. It ensures that you continue receiving a portion of your income, offering much-needed financial stability during challenging times.
However, it’s important to note that not all income protection policies offer the same level of coverage. While the fundamental purpose remains consistent across policies, the specifics can vary considerably. Most insurance companies typically cover anywhere from 75% to 90% of your net income, but these percentages can differ based on your chosen policy.
To ensure that you have a clear understanding of what your policy covers, you should have a conversation with your insurance provider. They can provide you with the details of your specific coverage, including any additional benefits or limitations that may apply to your policy. By doing so, you can make an informed decision about your income protection coverage, ensuring that it suits your individual needs and circumstances.
What Does Income Protection Not Cover?
Income protection insurance varies in its coverage, but generally, it does not cover the costs of medical treatment or other expenses. If you aim to find insurance that includes medical treatment costs, you should consider critical illness insurance. Critical illness insurance protects you against major health issues like cancer, heart attacks, strokes, kidney failure, liver failure, and more.
With critical illness insurance, you’ll receive a tax-free lump-sum payment if you’re diagnosed with an eligible critical illness. This sets it apart from income protection insurance, which provides monthly benefits throughout the period you cannot work.
In summary, income protection insurance offers ongoing monthly benefits during your inability to work, while critical illness insurance provides a lump-sum payment for treating specific critical illnesses. For comprehensive coverage against unexpected events, consider obtaining both types of insurance.
Who Should Buy Income Protection Insurance?
Is income protection insurance the right choice for you? This is the fundamental question to address before committing to this type of coverage.
In all honesty, any individual who earns income and values their long-term financial stability and their family’s well-being should seriously consider income protection insurance.
However, this insurance is particularly well-suited for those who:
- Don’t have savings or investments.
- Don’t have an emergency fund to fall back on during work-related disruptions.
- Live paycheck-to-paycheck.
- Aren’t eligible for government benefits.
- Work as self-employed individuals.
- Support dependents who rely on their income.
- Can’t access worker’s compensation or sick leave.
- Carry substantial mortgage and other financial commitments.
Yet, even if you don’t fit into the above categories, having income protection coverage remains a prudent step for achieving maximum financial security.
Why Should I Insure My Income?
The importance of the wage loss insurance is evident for every earner. To be more specific, here are the three key reasons why securing income insurance is essential:
1. Income Replacement
Predicting when an unforeseen issue might prevent you from working is impossible. However, you can prepare for such situations. Income protection insurance replaces a portion of your income, allowing you to maintain your current standard of living if you’re unable to work due to injury, sickness, or disability. This enables you to concentrate on recovery without worrying about financial hardships.
2. Speedy Recovery
Insufficient funds often contribute to prolonged illnesses, leading to delayed recovery. Having income coverage ensures that you can sustain your current quality of life while unwell, facilitating a faster return to good health without the added stress of financial concerns.
3. Risk Mitigation
Life is inherently risky, but you can effectively mitigate these risks with the right income protection coverage. Income protection is a risk management tool that helps you avoid costly missteps. One common mistake people make when they can’t work is accumulating substantial debts that become difficult to repay. However, with an income protection policy in place, you can rest assured that your financial well-being is safeguarded during times of work incapacity.
How Much Does Income Protection Insurance Cost?
Loss of income insurance typically falls within the range of 1–3% of your income in terms of cost. However, the exact price of your income protection insurance hinges on several factors, including:
- Health Status: Your overall health status plays a pivotal role. Better health generally translates to lower risk for your insurer and, consequently, a more affordable premium. Conversely, if your health is less than optimal, you might face higher costs.
- Smoking Habit: If you’re a smoker, you pose a higher risk to your insurer, leading to higher insurance costs. In some cases, insurers may even decline coverage for smokers. On the other hand, if you don’t smoke, your insurance expenses are likely to be lower.
- Job Type: The nature of your occupation matters. Riskier jobs increase the perceived risk for your insurer and can result in higher insurance expenses. Conversely, your premiums will likely be more manageable if your job is less hazardous.
- Age: As people age, they often contend with more health issues, which can increase income protection insurance costs.
- Coverage Amount: The extent of your coverage directly impacts your overall insurance costs. The more extensive your coverage, the higher your premiums will be.
- Benefit Period: The benefit period, or the duration during which you receive monthly payments, can influence your insurance costs. Opting for a longer benefit period will generally increase your premiums.
- Waiting Period: The waiting period, or the time you must wait before your coverage kicks in, also impacts costs. A longer waiting period typically results in lower insurance expenses.
How To Choose The Right Income Protection Insurance For You
Selecting the right income protection policy amidst a multitude of options can be a challenging task. When looking for the best income protection insurance in Canada, it’s crucial to weigh the following factors:
1. Diverse Policies
Canada boasts several insurance providers, each with its unique underwriting criteria. Consequently, the terms and conditions of policies vary significantly. To make an informed choice, compare different policies to find the one that aligns with your needs and budget.
2. Potential Exclusions
Different policies may impose various exclusions that prevent you from making a claim, even if you cannot work. Before purchasing a policy, discuss exclusions with your provider to ensure they don’t conflict with your needs. It’s noteworthy that policies with fewer exclusions tend to have higher premiums.
3. Coverage Rate
Most insurers in Canada typically offer income protection coverage ranging from 75% to 90% of your net income. If the maximum coverage rate seems excessive for your requirements, consider negotiating to lower your premiums by applying for coverage below your net income.
4. Claim Conditions
To be eligible for income protection claims, whether temporary or permanent, you must be incapable of working due to illness or injury. However, claim conditions can vary among insurance companies. Choose a provider whose conditions align with your specific situation.
5. Waiting and Benefit Periods
The waiting period is the time you must wait for coverage to activate after filing a claim, typically ranging from 30 to 90 days. Longer waiting periods usually translate to lower policy costs. Conversely, the benefit period is the duration of monthly payments after a claim, which varies from one insurer to another. Shorter benefit periods lead to lower premiums but mean payments cease sooner, even if you can still work. In contrast, longer benefit periods result in higher premiums but provide ongoing monthly payments for an extended duration.
The Best Income Loss Insurance Companies in Canada
When it comes to protecting your income and financial security in Canada, several reputable insurance companies stand out. Here are some of the best income loss insurance providers to consider:
- Manulife: Manulife is a well-established insurance company in Canada known for offering a wide range of insurance products, including income loss insurance. They provide flexible policies to suit various needs.
- RBC Insurance: As a part of the Royal Bank of Canada (RBC) family, RBC Insurance is a trusted name in the industry. They offer comprehensive income loss insurance coverage and excellent customer service.
- Canada Life Insurance: Canada Life Insurance is known for its strong financial stability and commitment to policyholders. Their income loss insurance options are designed to provide peace of mind during unexpected financial setbacks.
- Desjardins Insurance: Desjardins is a cooperative financial group offering income loss insurance with customizable options. They focus on tailoring policies to fit individual needs.
- iA Financial Group (Industrial Alliance): iA Financial Group is a leading insurer in Canada, known for its diverse insurance solutions, including income protection. They offer a range of options to ensure you have the coverage you need.
- Empire Life Insurance: Empire Life Insurance provides income loss insurance policies that are flexible and designed to accommodate various income levels and lifestyles.
Final Thoughts on Income Protection Insurance
Income Protection Insurance is not just a financial safeguard; it’s your peace of mind during unexpected life challenges. With the right policy in place, you can ensure that your income remains secure, allowing you to focus on what matters most.
If you’re ready to take the next step in securing your financial future, don’t hesitate. Reach out to trusted insurance providers and explore your options today. Your financial stability and the well-being of your loved ones depend on it.
Don’t wait; take action now and protect your income with the right Income Protection Insurance policy. Your future self will thank you for it.
FAQs on Income Protection Insurance in Canada
Is it Worth Getting Income Protection Insurance?
It’s worth getting this type of insurance if you’re concerned about your and your family’s financial security when you cannot work.
With income protection, you don’t have to run into debt or sacrifice your current standard of living because of an illness, injury, or disability that stopped you from working.
What is the Average Cost of Income Protection Insurance?
The average cost of income protection varies from one insurer to another. However, your monthly premium should be anything from $45 and above.
How is Income Protection Cover Calculated?
Each insurance company uses different factors to determine your coverage. However, most insurers determine your coverage using your average pre-disability income (often 12 months).
Furthermore, your income protection cover can be determined by the risk you pose to your insurer. The higher the risk, the lower your coverage.
Some insurance companies will decline your offer if you pose a high risk to them. Factors determining high risk include smoking, poor health, and job type.
Is Income Protection Better than Critical Illness Cover?
Both critical illness and income protection coverage is essential, and you should buy the two. But if you want to narrow your selection, it’s essential to consider your situation, especially your job type and health status.
If you have a riskier job and poor health status, buying critical illness insurance is essential first. But if the reverse is the case, I recommend buying income protection cover first.
The reason is that critical illness insurance only pays one lump sum when you encounter a severe medical condition. But depending on your benefit period, your incomplete protection policy pays you monthly once you cannot work due to illness, injury, or disability.
Is Income Protection Insurance Payout Taxable?
Once you pay the monthly premiums yourself, your income protection payout will not be taxed. But if your employer or partnership pays the monthly premium, the payout is taxable.
