If you don't have children, you might think you don't need insurance, which is often thought of as providing a benefit for those you leave behind after your death — but insurance can also help protect your finances while you're alive, providing financial stability in case the unexpected happens.
You may have thought at one point, “if I have kids I’ll consider insurance but if I don’t end up having kids then there’s probably no need”, and you may be right. People often think of insurance as providing money, a financial benefit for those you leave behind in the event of your death and that is true about life insurance – but there is insurance available that can also help protect your income and your finances while you’re alive.
Two examples of insurance that can help you money-wise while you’re alive are critical illness insurance and disability insurance. These types of insurance are called living benefits insurance, because they provide a financial benefit while you are alive.
Here’s how living benefits insurance might work.
A Living Benefit for Sonja: Disability Insurance
Sonja and Martin are married and live in Montreal. They both work full-time, each earning about $60,000 before taxes. Sonja works as the administrator at a local chiropractic clinic, and Martin is a high-school teacher.
Sonja’s worried that if something were to happen to her, like a sickness or a bad injury, she wouldn’t have money coming in to pay bills and help maintain her and Martin’s lifestyle. Sonja and Martin like to travel, and they’ve been saving up as they plan to take a “sabbatical year” from their jobs within the next seven to ten years. Sonja decided to buy individual disability insurance to help protect her income and her and Martin’s future plans.
One day, while rushing out the door, Sonja tripped and fell, injuring her spinal cord and breaking her ankle. Her physicians are confident that she will make a full recovery from her injuries, but they expect it may take up to six months before she will be ready to return to work.
After her doctor fills out the required paperwork, Sonja applies for the benefit from her disability insurance, and her application is approved. Then, after a 30-day waiting period, Sonja’s disability insurance starts to pay her a monthly benefit. Her policy pays 85 per cent of the after-tax income she was earning before her accident. With her monthly benefit, she and Martin are able to maintain a reasonable amount of their budget – including setting aside funds for their planned sabbatical. Having the disability insurance in place means that Sonja doesn’t have to worry about her finances, and instead can focus on her recovery.
A Living Benefit for Arturo: Critical Illness Insurance
Arturo is single and lives in Vancouver. He purchased a critical illness policy a few years ago, after a couple of people close to him were diagnosed with life threatening illnesses and he saw how much a critical illness diagnosis affected their finances. Arturo wanted to make sure he could pay his bills and maintain his standard of living if he were to experience a critical illness that could impact his day to day life.
Recently, Arturo was diagnosed with lymphoma, a type of cancer that starts in the white blood cells. Arturo makes a claim on his critical illness policy. It pays a tax-free lump sum of $150,000 that Arturo can use any way he wants. With the lump sum, Arturo is able to pay for housekeeping and meal preparation services he needs while he is receiving treatment. He also uses a portion of the lump-sum benefit to pay down his mortgage so his day-to-day living expenses are decreased. Later on, if he is not able to return to work at full capacity, he has also reduced his mortgage balance, so he doesn’t need to earn as much income.
The benefit from his critical illness insurance has allowed Arturo to strengthen his finances, and maintain his quality of life, while he is experiencing the impact of the diagnosis and treatment of a critical illness.
How Insurance Can Reduce the Financial Impact of the Unexpected
These two examples show the important role that living benefits can play in providing financial security.
If you don’t have children, you may not want a large life insurance policy to provide a benefit in the event of your death, but you may still want a small policy to cover any final expenses, such as the cost of a funeral.
It’s also important to recognize the impact that illness or disability can have on your financial plans while you’re alive. For example, the Canadian Cancer Society says that on average, 617 Canadians are diagnosed with cancer every day – and that cancer can occur at any age. An estimated 1.6 million Canadians have heart disease or are living with the effects of a stroke, according to the Public Health Agency of Canada. And in 2017, 22 percent of the Canadian population aged 15 years and over – or about 6.2 million people – had one or more disabilities.
Living benefits insurance, whether critical illness or disability insurance, can help make sure you are still able to carry out the plans you’ve made for yourself and your life.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.