No one wants to think about being unable to work because of an illness or injury. Unfortunately, many Canadians face this reality. Research estimates that 8% to 12% of the workforce is off work due to health reasons, and only 20% of those out of work for more than a year return. Preparing your finances for a temporary or permanent job loss can provide you with a sense of security. In this post, we will explore steps you can take to manage time off work without jeopardizing your financial stability.
Preparing Your Finances
Any disability that prevents you from earning an income can significantly affect your finances. Not only do you lose wages, but being unable to work can also increase expenses. Taking a proactive approach can give you peace of mind, knowing that you are prepared to handle a setback. Here are some steps to consider when preparing your finances:
- Review your budget to determine how much you need each month to maintain your lifestyle.
- Check your benefits with your employer or review your self-employed policies.
- Look into government-funded programs that may be available to you.
- Consider your partner’s income and benefits and how they can support you during this time.
- Evaluate any insurance policies you may have, and decide if you need to add or adjust coverage.
- Review your investments to see whether you can generate an income stream or need to sell assets for liquidity.
By taking these steps, you can help ensure your financial stability even in challenging times.
Your budget
Analyzing your income and expenses will help you determine how much money you need each month. Some costs, such as housing and utilities, are fixed and cannot be changed, while others can be reduced or eliminated if necessary. Understanding your basic financial requirements will clarify how much income you need to minimize the impact of your disability on your lifestyle. Also, estimate expenses for items like medication, medical equipment, and home care.
Employer benefits
If you’re an employee, review your employer benefits, such as paid sick leave, to feel more confident about your income protection options.
Employer benefits can play a significant role in your income protection strategy, but it’s essential to know exactly what you are entitled to. For instance, short-term disability insurance may provide your full salary or a high percentage of it; however, it only applies for a limited time. After that period, you might qualify for long-term disability insurance, which typically offers a reduced amount.
If you have employer-provided health benefits, confirm the benefit amounts and the requirements for qualifying. Many benefit plans require a medical professional’s authorization before processing claims. Additionally, some plans may limit the amount you can claim per year, regardless of your actual expenses.
If you’re injured at work, WSIB may cover you until you can return to your duties, but it must approve your claim.
If you are self-employed or a small business owner, you may have purchased disability insurance. Review your policy to understand what you are entitled to if you’re unable to work for health reasons.
Government support
Employment insurance (EI) offers temporary benefits for sick leave. The Canada Pension Plan allows you to claim benefits if you can’t return to work. Take some time to familiarise yourself with the conditions and limitations of each program.
Your partner’s income
If you share expenses with a partner, involving them in your planning can foster shared responsibility and support, making your financial security feel more attainable. Your partner’s income may help support the household, and they may have benefits they can extend to you.
Insurance policies
If you have purchased critical illness or disability insurance, you may have stand-alone policies, a combination of both, or add-ons to credit products like a mortgage.
Critical illness insurance typically provides a lump sum payment if you are diagnosed with a covered illness. In contrast, disability insurance pays a percentage of your income. This benefit may last for a set period or continue until you can return to work. Your policy will outline the specific coverage it offers.
If you have this type of insurance, consider consulting a financial advisor to assess whether your coverage meets your needs. Understanding your policy’s exclusions and limits can help you prepare for potential challenges and give you peace of mind.
Your investments and assets
If you have considerable assets, consider using online calculators or consulting a financial planner to estimate how much of your expenses your investments can cover or how much income they can generate if you become unable to work. This will help you set realistic savings goals and improve your financial readiness.
Making Your Plan Work
A well-designed financial plan is essential for those who may face illness or disability because it can provide the support you need when you need it most. To avoid potential gaps in your coverage, careful planning is crucial and involves considering various factors. At MDL, our team of Certified Financial Planners in Ottawa has over 30 years of experience helping clients build financial futures that align with their dreams and goals. We would be pleased to partner with you to create a customized financial plan that meets your needs. To book an appointment, please visit our website or call us at 613-416-9649.
We look forward to working with you!
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