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A young woman pushes a young man in a wheelchair. (Tatiana Belova/Tatiana Belova)
A young woman pushes a young man in a wheelchair. (Tatiana Belova/Tatiana Belova)

Smart Cookies

Would your finances survive if you couldn't work? Add to ...

Whether we like it or not, having adequate insurance is an important piece of our personal finance plan. We have car, home, life, and mortgage insurance, but what about disability insurance? Coverage that pays a fixed amount each month to replace the income we would lose if we have an accident or illness seems like it should be a priority, but it’s often overlooked, according to Mr. Mohamed Mullani, a certified financial planner with SunLife Financial.

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“Everything we do comes from the fact that we have the ability to earn an income. Our car, our house, money to travel, it all comes as a result of going to work. Nothing is more important than securing your income,” says Mr. Mullani.

If you’ve put off this type of insurance then it might be time to revisit your overall “what-if” plan. Life insurance deals with the question of mortality, and what will happen if there is a death in the family. Disability insurance asks the question of mobility, and how likely you are to suffer a debilitating condition over the course of your lifetime.

According to Canada Life, which provides insurance and wealth management products and services, 1 in 3 people, on average, will be disabled for 90 days or longer at least once before age 65. The average length of a disability that lasts over 90 days is 2.9 years. If the breadwinner in your family is unable to work for the next two years, how will that impact your life? Even doing without one salary for 90 days could be crippling for many of us who don’t have emergency savings to fall back on.

There are many variables in determining the cost of your coverage, says Mr. Mullani. If you are in construction you will obviously pay more per month than someone who sits at a desk all day. To give us an idea of costs, he says he recently set up disability insurance for a Toronto doctor in her 30s, who makes $140,000 a year. She pays roughly $200 a month for coverage. This policy would pay out $5,000 per month, the minimum needed to cover personal and business expenses, until the age of 65.

If you’re self-employed then you will need to take out a policy for yourself. For other workers, you should check to see if your employer covers this insurance. In either case, it’s worthwhile to clarify the terms of your plan with your bank, your financial planner, or insurance company, to confirm exactly what is covered in case of an accident or illness.

Mr. Mullani points out that you don’t need this kind of insurance if you’re part of a two-income family and losing your income wouldn’t affect the family’s well being. Or, if you have significant savings squirrelled away. At the end of the day it comes down to protecting the source of our income, and what would happen if that income were gone, especially for those in their 30s who still have 30-plus working years in front of them, he says.

Mr. Mullani puts it this way: “If you had a machine in the basement that prints $100,000 a year for the next 35 years, would you buy insurance for that machine?”

Angela Self is one of the founders of the Smart Cookies money group. Read her weekly column on managing debt and saving money at the Globe's personal finance site.

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