Don’t Forget About Disability Insurance

In this clip, Jason Heath and Dave discuss why disability insurance is often overlooked—and why that can be a costly mistake.

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 You brought up disability insurance. I love your stuff on disability insurance. Again, mostly ’cause we agree on everything. And one of the things that you’ve said in an article a while ago was that a lot of the group plans that work aren’t particularly good when you do an in-depth analysis of them.

I couldn’t agree more, and I have lots of evidence to prove it. Where you’ve had denial of claims or you’ve had the benefits change two years in, et cetera, et cetera. Do you push a lot of your clients to go get an individual policy even when they have some coverage at work?

I do, absolutely. Particularly if somebody’s got a relatively high income, a lot of these group plans are maxed out at a certain monthly dollar amount, so high income people tend to, to not have good coverage. Self-employed people. There’s a lot of self-employed people that’ll have a ton of life insurance, but no disability insurance, so I’m constantly bringing it up.

One of the big challenges that I run into though, Dave, particularly the, the people who probably need it the most are in their thirties, they’re in their forties. It’s very expensive. You can go ahead and get a massive life insurance policy for a relatively low premium, and then somebody goes to take a look at a disability policy and, oh, it’s expensive.

I don’t wanna buy that. And I’ll always have to explain to people, well, the reason the life insurance, the reason that 10 year life insurance policy when you’re 35 is cheap is because the likelihood of you dying between 35 and 45 is relatively low. The reason the disability insurance when you’re 35 is expensive is because if you become disabled, and it’s a good policy that’ll cover you until age 65,

there could be 30 years of payments. So it’s a very high risk, therefore a higher cost. And the fact that an insurance premium is expensive shouldn’t necessarily be a deterrent. It should be actually a bit of a red flag to say, Hey, this is risky. This is something that can derail your financial plan, that you should think about how to mitigate.

Everything you said there is bang on. The problem I’m seeing is so many people are squeezed right now. We mentioned the cost of living early, the real estate prices that when they’re also trying to max an RRSP or a TFSA, they just don’t have enough leftover, so it seems to be disability insurance.

They’re willing to take the risk with, even though, to your point. I think the chances of a 30-year-old Canadian being disabled at some point during her or his working career is one in four. When you look at the six month period, and that’s a pretty big number. I used to think that number was exaggerated by the insurance industry, but as I’ve gotten older and watched friends, I’ve realized it’s not.

That you’ve got all kinds of people run into mental health issues or accidents or whatever else. So it’s, it’s very frequent.