How Income Protection Insurance Fits into a Complete Financial Plan


I’ve got a question for you: Why did you go to work this week?

Was it because you just love your job? Maybe. For a lucky few of us, this might be true. But most people go to work for one very simple reason: they need the money to survive.

In other words, without your regular paycheck it might be difficult to continue paying your mortgage, car payment, utilities and grocery bills each month.

Now, let me ask you a few more questions:

How long could you survive without receiving that regular income?

What would happen if you got sick or injured and couldn’t work for six months or more?

Which benefits are in place today that you could rely on if this happened to you?

Now, usually whenever I ask these questions, I get responses like these:

  • It won’t happen to me.

No one ever plans to get injured or to experience a long-term disability. But, most of us can stop and think of at least one person we know who really did end up needing income protection.

Of course, no one ever plans to have a stroke, get into a serious car accident or to have a debilitating slip and fall injury. Unfortunately, after these things happen it’s way too late to do something about it. Can you imagine calling to purchase accident insurance while you’re standing on the side of the road next to your car which is wrapped around a tree? It’s too late to do something about it after the disaster strikes. The best time to buy income protection insurance is before you need it.

  • It costs too much.

Despite the obvious risks that come from losing your income for months at a time, the cost of purchasing income protection insurance often keeps people from pulling the trigger. The truth is this: everyone can afford something. And let’s face it, something is better than nothing, especially when you need to pay your bills, buy groceries and keep living in your house.

Most financial advisors and insurance agents can come up with a customized plan that keeps at least a small amount of income rolling in while you’re unable to work.

  • I’ve already got coverage through my employer.

If you do have coverage through your employer, that’s great! Still, there are a few things to consider:

  • Most employer insurance plans only pay out a small percentage of your salary.
  • The amount paid out to you is often taxable.
  • The promised amount is often reduced considerably once tax is taken out.
  • Most employer-provided income protection policies aren’t portable if you change jobs.

Here’s one common scenario: You get injured and can’t work for 10 months. Your employer’s income protection only covers 60% of your salary. Taxes take another 20% of that amount. You’re left with only 48% of your regular salary to pay your bills each month. Is that enough to keep you and your family afloat for an extended period of time?

It’s always good to take a critical look at your employer’s long term disability plan. It might not cover everything you think it does. In those cases, it might be a good idea to purchase supplemental coverage to bring the monthly amount back up to 100% of your regular salary.

Important questions to ask about income protection

So, how do you know if income protection coverage is right for you?

If the difference between your retirement goals and your current financial status depend on you earning an income, then that income is worth protecting with disability insurance. Most individuals who purchase disability insurance are between 25 and 65 years old, work a full-time job and earn annual income of at least $100,000 per year.

There are usually three basic levels of need. Which of these sounds like you?

  • I need the maximum coverage possible.
  • I need a specific amount every month to cover my bills.
  • I can only afford to invest a certain percentage of my income—what kind of coverage will that get me?

No matter which of these categories you fall into, your financial advisor should be able to recommend a customized plan that meets your needs.

When it comes to insurance, most of us prioritize our health, our home and our vehicles. But all three of those depend on a reliable income stream. Without a monthly income, most of us wouldn’t last very long before having to declare bankruptcy, or worse.

Please don’t let this happen to you. Talk to your financial advisor or your employer’s HR representative to make sure you have the income protection you need to survive an extended period if you’re unable to work.

If you’d like to get some insight from me, please feel free to send an email to [email protected].