Risk Management via Insurance – A Definitive Guide
This is a guest post series by Brian Poncelet who is an independent certified financial planner (CFP) working in the financial services industry since 1994. Along with insurance, Brian Poncelet focuses on mortgage and retirement planning.
Everyone likes to talk about rates of return, but as my dad always said “your health is the most important thing! Yes, we may lose our job or we can have a set back in business, but without our health we can’t bounce back from life’s misfortunes.”
Life, disability and critical illness insurance are often overlooked and certainly not discussed in the media because they are not fully understood. Ask yourself, if you could choose between two jobs, one paying $75,000 with no benefits or a job paying $72,000 and a salary for life should you become sick or disabled, which one would you choose? Most people would choose the one with benefits, because after taxes, $3,000 makes little difference to their financial security.
Today, employers are watering down company benefits because costs are rising much faster than inflation due to our aging population. As a result benefits are cut, through the use of “flex dollars” (fixed dollars to buy benefits) or changing insurance companies. Who really reads the company’s benefits hand book…very few of us…that is, until we actually need to make a claim.
Some times it is better to get your own private insurance plan, one that no one can take away or modify without notice, especially if you may not be with the same employer for the rest of your life.
FrugalTrader has given me the opportunity to discuss the topic of insurance. Certainly this topic is complex. My intent is to provide a broad overview in 3 weekly submissions, beginning with Life Insurance. The topic of disability insurance will then follow. Finally, I will wrap up with Critical Illness Insurance. As you are reading the series, be mindful of your own portfolio and discover how insurance can help you to mitigate risk.
Stay tuned folks, I will be posting the Life Insurance Guide shortly!
5 Comments, Comment or Ping
1. TKO from Ontario
As a new father, more so than ever I look forward to information on Term Life and Disability Insurance. Gotta make sure my girls are taken care of.
Jun 26th, 2008 @ 12:32 pm
2. MikeG
I read somewhere that you should have your own disability insurance, rather than through your employer.. They said this was because if its from the employer and you make a claim, its taxable. And if its your own and you make a claim its tax free… Is this true?
-MikeG
Jun 26th, 2008 @ 12:47 pm
3. Shayne S
I believe that your disability insurance income will be taxable if your premiums for the insurance were not taxes. ie: Some employers pay half of your disability premium and do not tax this benefit. In this case half of your disability insurance income would be taxable.
Jun 26th, 2008 @ 1:08 pm
4. Brian Poncelet, CFP
Hi Mike,
Having your own disability policy is usually better than any group plan people may have. Yes the money from a privately own disability plan is tax free, plus if it is a good plan you could do something else and still get paid. Example a dentist hurts himself, decides to sell cars he can still collect his disability.
With a group plan, if you can do any job they will reduce or cut off any disabilty cheque. Plus you will have to check with a doctor every few months to see if they can cut you off.
Many plans only offer coverage for five years (group plans) If it is serious then financially you will be ruined if it lasts more than five years.
hope this helps a bit.
regards,
Brian
Jul 4th, 2008 @ 4:49 pm
5. Tim Landry
Comment to Shayne’s point. I WISH it were “If the employer pays half, half the benefit is taxable”. What happens in fact is that ALL of the benefit is taxable but you get to deduct from the amount all the premiums YOU have paid – which is not the same thing. To create a simplified example. You have $2,000 monthly of taxable income and YOUR portion of the monthly premium is $100. You become disabled after one year of paying pemiums – so YOUR total contribution is $1,200. The first month you get a check for $2,000 – you can deduct $1,200 from it – so THAT month your taxable benefit is $800. Every other month – for the balance of the claim – the full $2,000 is taxable.
Now – another major reason not to rely on group benefits. My dad went to work for Bell Canada in 1936 and except for the Canadian Navy during WW II – he had no other employer. That is no longer true. Statistics Canada says we have 3 CAREERS and 8 jobs over a working lifetime now. In addition – we have one objective – to be competitive in a changing world market – and one problem – one of the most expensive labour systems in the world. Why do you think so many “employers” are hiring under contract – with no benefits? Because it saves them – I am told – 30% and makes them that much more competitive. How would you like to be offered a job – with a 30% raise in pay? I suspect most would love to take it. What happens if the new job comes with no benefits (the “price” of the raise)? Oh well, I can always buy them. What happens if I am a diabetic – or overweight – or have been treated for stress – or any other problem? Suddenly the choice is not so easy!
Aug 21st, 2008 @ 5:13 pm
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