After you’ve worked so hard to build a successful business, the thought of losing the business to disability or illness is something every entrepreneur needs think about long and hard. There are two types of insurance that can help protect you in the event of a catastrophic illness or disability: critical illness insurance and disability insurance.
Unlike life insurance, these types of insurance pay what is called a “living benefit,” meaning that money is paid to you while you are still alive. Life insurance, of course, pays out only when you die.
Disability insurance, or income-replacement, insurance provides a monthly benefit if you should become disabled and unable to perform your regular daily tasks. It ensures that you have a regular monthly income – typically some percentage of your current employment income – that lets you pay the bills while you are recovering from your disability.
Critical illness insurance, on the other hand, pays out a lump sum if you are diagnosed with a serious illness that is covered by the policy. You may use the funds in any way you wish. Unlike disability insurance, critical illness benefits aren’t dependent on your ability to perform your employment or job-specific tasks.
Critical illness insurance isn’t just limited to employment related coverage. For example, it can also provide families with the financial resources to help support recovery and care of a child in the event of a critical illness. It typically pays a lump-sum benefit if your child is diagnosed with one of the critical conditions defined under the policy and lives through the survival period (usually 30 days).
You can look to have several options built into the policy, such as a return of premium if no claim is ever filed – this would clearly be the best-case scenario. Some insurers also offer a conversion to an adult critical illness insurance policy, without new proof of insurability, when the policy expires, typically around age 25.
You may also place additional riders (specified add-on benefits) on your policy for an additional premium amount when you buy disability or critical illness insurance. Because these are complex policies with a number of restrictions regarding pre-existing conditions, you should speak to a licensed insurance agent about your needs and ask them to walk you through each type of insurance and the costs and benefits associated with each.
Courtesy Fundata Canada Inc. © 2015. Robyn Thompson, CFP, CIM, FCSI, is president of Castlemark Wealth Management. This article is not intended as personalized advice.
