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Income Protection for Entrepreneurs: Disability insurance 101

By Jackie McCann-Scott, Invested Mama

Entrepreneurs prefer to be the boss. As a business owner, I get the thrill that comes from being in the driver’s seat. But as a financial advisor, I am also keenly aware that sometimes life happens and things do not go as planned . . . even for bosses like us!

The absolute best way to keep you and your business moving forward when life does happen is through an income protection plan.

Commonly known as “disability insurance,” this plan provides a monthly income if you are unable to work because of injury or illness. The annual BMO Rainy Day report found that 30% of us are living paycheque to paycheque, and those with savings say they would not last three months without a paycheque. If you were unable to work, how many months could your current savings maintain your current lifestyle?

To determine how much individual disability coverage you need, an advisor would walk you through a series of questions, including a review of your current expenses, assets, and other potential sources of cash flow. How much you qualify for would then be determined by looking at your current income, occupation, lifestyle, and health.

Many business owners and self-employed persons assume income protection is not attainable. Perhaps they have heard rumours that you need to work outside the home, to have been in business for several years, or to be in perfect health to qualify.

Don’t believe everything you hear.

Insurers have integrated many features into the current disability product shelf that allow entrepreneurs to build plans that suit their needs and their budget.

Here are some questions that will help you to customize your income protection plan:

  • How long could I wait for benefits to kick in? Plan coverage can start in as little as 30 days, but if you can afford to wait longer, the cost of coverage goes down.

  • How will the insurer determine if I am disabled? The best definition of disability is based on your ability to carry out your regular duties. If you can’t do the work you love, why be forced to work at something else? Make sure your policy has this “regular occupation” definition for at least the first two years.

  • How long do I need my benefits to last? Most plans have a standard benefit period of two years, but the average time off for a person who has experienced a disability is 2.6 years. I always encourage at least a five-year benefit period. If you have the budget, plans that guarantee your income to age 65 are by far the best.

  • Do I expect my income to go up? If you are in good health now but as a new business owner have very little income to insure, consider adding a feature to your plan that allows your benefit to grow as your income does, regardless of changes to your health. You know you’re going to succeed. Protect that progress!

  • What if I never have a claim? Some plans return a portion of your premiums tax-free every seven years if you don’t have a claim. Consider it income protection and forced savings in one.

  • Can my company pick up the tab? If you have a partner and/or employees, there are creative (and legal) ways to have your company pay the premium. A tax-efficient way to take cash from my business? Yes, please!

As a boss in the music biz has pointed out, you work hard for your money, so you better treat it right!


Jackie McCann-Scott, Invested Mama

Jackie, owner and founder of Invested Mama Inc, was raised by the original Invested Mama: a single parent who not only could stretch a dollar for miles, but had a deep respect for money and the freedom it can provide. Jackie has since spent nearly two decades helping individuals and families address their own financial wellness with the same direct and clear approach that was taught to her. She provides a full range of financial planning, insurance, and investment solutions to her clients, utilizing the best resources in the industry. As a financial advisor, she aims to instil a sense of control and peace of mind around money that will empower her clients and keep them moving forward.

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