When to buy disability insurance

I met Sam (not his real name) one afternoon at a business event. I was attending the event and he was working at the event’s facility. I intended to briefly step away from the event to make a quick phone call and that’s when I met Sam.  It was one of those conversations that sometimes happen with strangers…sharing details that you would not share with colleagues or neighbours you have known for years. Sam disclosed to me that he was exhausted and unable to see his way clear to a resolution about his wife’s (let’s call her Sue) recent health issue that had left her unable to work.

Sam indicated that both of their salaries were necessary to meet their living expenses. Well into their 50s, they were looking forward to retirement within 10 years. Sam’s job provides competitive health and dental benefits. Sue is self-employed and relies on Sam’s benefits for coverage. This reliance on Sam’s benefit package is at the heart of the issue.  Sue did not have disability insurance coverage. Medical and dental benefits are helpful but not sufficient to keep some families solvent when a serious health issue arises in the uninsured partner. The problems this has created are plentiful:

• Sue has lost her revenue stream which is an important contribution toward maintaining household solvency;
• Sue requires care beyond the standard benefit offering prescription drugs, and some access to chiropractors and physio-therapists. A personal caregiver is required by her for a few hours throughout the week. This means that the family has taken on additional expenses at a time when their income has decreased. Sam not only works full-time but he now has taken on all the household chores as well as providing personal care to Sue. His vacation days are depleted and his boss, although empathetic about the situation, is no longer able to offer any additional extra time off);
• Sam could pick up more work hours in order to try and compensate for some of Sue’s lost income, however, Sue needs Sam at home provide care to her, to look after their two dogs, and to assist with a moderately disabled adult child;
• Family debt is rising quickly at a time in life when paying down debt should be a priority. Saving for retirement has become impossible and much of the prior savings have been used to help with the mortgage.

Sam and Sue have made an insurance mistake that happens far too often with self-employed individuals. When an income is vital to the solvency and savings of a family unit, the income earner needs to be insured for disability and death.  Otherwise, the entire family is placed at risk. Even though, in this case, Sue contributed a smaller income amount, her contribution is important and therefore insurance is necessary.

When considering disability insurance, make sure you understand the options. For more information on the differences between own occupation, regular occupation and any occupation, read “Disability insurance: Preparing for the worst.”

Lee Anne Davies has worked as a consultant for insurance, wealth management, banking and financial education companies. She has a PhD in Aging, Health and Well-being and a Masters of Arts (MA) in Gerontology and Health Studies from the University of Waterloo and an MBA from Athabasca University’s Information Technology Management program. She’s also successfully completed the Canadian Securities Course and the Professional Financial Planning Course. To read more from Davies, visit her blog Agenomics.