The question posed in the title of this article could be said to be at the core of “living benefits” insurance products, such as disability, critical illness, and long term care insurance.
They are referred to as living benefits because, unlike with life insurance, they will pay out to you during your lifetime, and not to beneficiaries upon your death.
Living benefits insurance products provide strong support for your financial plan, particularly in this age when more and more of us will have to rely on our own efforts to fund our income in retirement.
Unfortunately, many people skip the risk management step in their financial plan and go straight to the retirement plan. This is asking for trouble.
Consider a disability for example. Your most important asset when you are working is your ability to generate income. In the absence of that income, how would you support your budget? In the absence of disability coverage, you might have to turn to your retirement savings.
Disability insurance insures your income – providing a monthly benefit based on your income, potentially (should you continue to meet the contract definition of disability) to age 65, or for a shorter period should you so elect when applying for coverage.
When you are the person paying the premiums for your disability coverage – including through a group benefits plan – the benefits will be paid to you tax-free.
Apart and aside from your monthly budget, a critical illness or injury can bring about additional costs that may not be covered through health insurance, since they may not specifically be health-related. This is where Critical Illness insurance coverage can help.
Critical Illness Insurance
A Critical Illness Insurance policy will pay a lump sum benefit when you are diagnosed with one of the covered critical conditions (eg: cancer, stroke, heart attack) to the extent required in the policy, and survive the diagnosis by a set number of days – generally 30. The payout is tax-free, and funds can be used for whatever purpose.
For example, you might use the policy payout to cover off mortgage payments. If the payout could cover your mortgage payments for 3 months, how much would that help you focus on your recovery?
Long Term Care Insurance
Finally, Long Term Care Insurance will pay a monthly benefit where you are assessed as being unable to perform two Activities of Daily Living (ADLs), such as eating, bathing, dressing, etc.
The benefit paid will be on a monthly basis, tax-free. Unlike disability insurance, the amount you apply for is not based on income – you can generally apply for as much coverage as you can afford.
Policies can be structured to cover facility care only, or home care and facility care. There may be time limitations as to how long benefits will be paid for.
Since the likelihood of a claim on a living benefits policy is greater, the premiums will be more expensive when compared to a life insurance policy.
Certainly, the earlier in life you apply for a living benefits policy, the more affordable the premiums will be. From the perspective of protecting your financial plan, some coverage would be better than no coverage at all.
What coverage is appropriate for you? Contact your Scrivens advisor to find out.
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