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Wealth brings extra burden in planning for illness, disability Add to ...

Most Canadians would rather not spend time thinking about the possibility of a serious illness or accident, and what it might do to their lives.

“None of us plan to get sick or injured and suddenly find ourselves unable to work, but it can happen,” said Karen Voin, assistant vice-president of group benefits at the Canadian Life and Health Insurance Association.

Indeed, the association’s statistics indicate that, on average, one in three Canadians will be disabled for 90 days or more at least once before the age of 65.

Wealthy Canadians are certainly not immune, and are likely to have even greater financial responsibilities, whether they are primary business owners or support an extended family accustomed to a high-income lifestyle.

Disability and critical illness insurance are usually integral parts of their financial portfolios.

“The higher the income and the more moderate the net worth, the more eager people are to make sure that if something happens, their income is replaced,” said Lawrence Geller, an expert in living benefit insurance based in Campbellsville, Ont.

They may even seek increased coverage from Lloyd’s of London. The reason? In Canada the maximum amount of disability insurance benefit they can buy is $35,000 a month.

“You can’t go to RBC and Manulife and buy [a policy] from each of them,” said Mr. Geller. “In Canada you cannot stack monthly disability benefits to get a larger amount than one company will sell.”

For those earning $2-million or more annually, that would bring in a yearly income of only $420,000. “So when you get much-higher-income people, we start stacking Lloyd’s on top.”

Wealthy people are not only concerned about themselves, he added. “They have people who contribute to their lifestyle, valued employees who they are worried about,” he explained. Whether it is a nanny or a personal assistant, he said, “because they are valuable to them, it is important that they be covered.”

In fact, the first step for any Canadian, wealthy or not, thinking about disability coverage is to check their employer-provided group benefit package, advisers say.

But group coverage may not cover everything an employee thinks it does, said Layne Choong, an adviser with Sun Life Financial based in Calgary.

“I review any coverage that my clients have through their employer and look at possibly adding to it or putting other products in place in order to make sure that all risks are covered,” she said.

Professionals can also buy insurance against loss of future earnings, said Mr. Geller.

“Let’s say you are a young architect earning $100,000 a year working for a firm,” he explained, “but the partners are earning $1-million a year. You start to think that, over time, my income is going to go up, but right now $4,000 a month disability is as much as I can buy based on my earnings.”

A loss-of-future-earnings plan can provide $1-million or more of additional disability protection. “Depending on the profession, or on the business, you see that quite a bit,” Mr. Geller said.

Health and disability insurance products can be complex, said Ms. Choong. “There are a lot of different aspects to a policy that need to be looked at.”

One thing to note is that disability insurance as a category incurs the largest number of consumer complaints, according to the Toronto-based OmbudService for Life & Health Insurance, an independent complaint resolution and information service. In 2016, they made up 40 per cent of all the complaints that organization received.

Such complexity highlights the need for getting good advice. But there are lots of tools and resources available too, Ms. Voin says.

“If you go to a regulator website, for example, there would be a list of advisers who are registered and licensed in your province,” she says. The OmbudService website also provides information on particular types of insurance.

Those with complex finances, however, will likely need help. Start with a financial adviser, Ms. Voin says, who might send you to an insurance adviser for specific product advice.

“There are only about a couple hundred people in Canada who are disability specialists,” said Mr. Geller, “and that is principally because it is more complex.”

As an example, he says that a third of all disabilities affecting professionals, high-income and high-net-worth individuals in Canada “are mental and nervous disabilities. And critical illness insurance will never pay for mental and nervous.”

Discussing health insurance plans with family members is also a good idea, advisers agree. The health condition of one family member can affect the family as a whole, said Ms. Choong.

“I always recommend sitting down with your entire family,” she said. “You might have one person who is the breadwinner, but you really need to look at the entire situation and how everybody fits into the bigger picture.”

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