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Why Do Realtors Need Disability Insurance?
As a realtor, you are busy with your day-to-day tasks—things like staging or showing a home, meeting with clients, driving around town, and more.
You never think about not being able to work because of a disability. But what if your income suddenly stopped? How will you maintain your lifestyle?
Maybe you have enough savings to get you through a short-term disability. But what about one that lasts for several months or even worse, years?
Can you afford not to insure this risk?
What are my chances of being disabled?
It’s higher than you think. Consider these stats:
- 1 in 3 people will become disabled for 90 days or longer before the age of 65.
- 1 in 7 Canadians live with a disability.
- Chronic conditions are 6 times more likely to cause a disability than accidents.
Chronic conditions are things like mental illness, cancer, cardiovascular diseases, musculoskeletal diseases like arthritis, and more.
Unlike accidents, you can’t really be more careful and avoid these illnesses. They can happen to anyone. What you can do is prepare for it by getting disability insurance.
How Disability Insurance Works For Realtors
Disability insurance pays a monthly income if you can’t perform the regular duties of your job. It starts after a waiting period like 90 or 120 days and continues until either you’re healthy enough to return to work or the benefit period ends.
Sounds simple enough, right?
But there are lots of details within the policy that you should be aware of:
Definition of disability: You want the best definition of a disability that you can get. That way, you have the best chance of getting a claim approved.
With an individual disability insurance policy, you’re considered disabled if you can’t perform the regular tasks of your job and are not otherwise gainfully employed. This is called ‘regular occupation’.
Later on, I’ll show you what to avoid when you’re looking at the definition.
Occupation class: The best occupation class is 4A which generally requires the highest levels of education and has the lowest risk of disability. This results in the lowest cost per $100 of benefit. These occupations include doctors, dentists, accountants, lawyers, etc.
The risk of physical and mental disabilities increases as you go down the scale from 4A to 3A, 2A, A, and B. Accordingly, the rates increase as you go from 4A to B.
Unfortunately, realtors are classified as occupation class A, which means in the eyes of the insurance company, you are a risky bunch.
But it’s not all bad news. If you have a number of years of experience and meet an income threshold, you can upgrade from class A to 2A or even 3A, saving you up to 40% on your premium!
Waiting period: This is the number of days you have to wait before benefits kick in. 90 and 120 days are the most common. The shorter the waiting period you choose, the more expensive the policy, and vice versa.
That’s why you should try to self-insure the first 90 to 120 days of a disability with an emergency fund.
Benefit period: Since you’re most concerned about a long-term disability, you should choose the longest benefit period, which pays you to age 65.
Monthly benefit amount: The maximum you can buy depends on your income. The insurance companies don’t want to encourage people to go on an extended claim, so it limits the benefit to a percentage of your income. For example, if you make $4,000/month, your maximum benefit is $2,880/month, tax-free.
You might be wondering – which income do you use? It’s actually the earned income that you report to CRA. So that’s your net income after tax-deductible expenses but before tax.
Cost-of-living adjustment: This is an optional benefit that increases your monthly benefit by inflation if you’re on a claim. It’s very important to add this rider so that your benefits aren’t eroded by the effects of inflation.
Reduced disability: This is another highly recommended rider that pays out a benefit even if you are not totally disabled. For example, if you can’t work as many hours or have your income reduced because of a disability, you can still get partial benefits.
Additional insurance: If you’re just starting out and haven’t reached your earning potential, you can get this rider to increase your benefits as your income goes up. The benefit is that you don’t have to go through medical underwriting again. So if you earn a lot more money 10 years down the road but aren’t as healthy, you can still top up your coverage with this rider.
Premium refund: What’s one of the biggest worry most people have when they buy insurance? Wasting money!
Now imagine you can get some of the premiums back if you never go on a claim. You can with this rider.
Comparing to Manulife's Realtors Income Protection disability insurance
Ok, but what if you have coverage through Canadian Real Estate Association (CREA) and Manulife?
Is that better than having your own policy?
Consider the following facts about Manulife’s plan, and you be the judge:
Increasing rates: The premium isn’t guaranteed. In fact, the premium you pay depends on your age bracket. Once you move to a higher bracket, you’re forced to pay the higher rates.
So you might start off with a cheaper policy but end up paying more over the long-term.
Definition of disability: Remember when I mentioned what definition of disability to avoid? Manulife’s plan has it.
It starts out with the ‘regular occupation’ definition but changes after 24 months. To continue collecting benefits, you have to be unable to perform any type of gainful occupation for which you have training, education or experience. This is known as the ‘any occupation’ definition.
This means you can be forced to return to the workforce in another position even if you can’t perform the tasks of a real estate agent.
Limitation: Besides having a poorer definition of disability, payouts are limited for certain illnesses. This includes mental and nervous disorders, which are only covered up to 24 months.
Optionals riders: While you can get the cost-of-living adjustment rider, there’s no residual disability, additional insurance, or premium refund riders.
Business overhead expense insurance
This is a separate type of insurance for self-employed professionals that reimburses your business expenses like rent, utilities, salaries, and more.
When a disability strikes, income drops to zero while these expenses continue. You can think of disability insurance as protection for yourself and overhead expense insurance as protection for your business.
One of the best thing about business overhead expense insurance is that premiums are tax-deductible.
The Best Disability Insurance Policy For Realtors
The best disability insurance policy is the one that pays out when you are disabled.
That means it has the best definition of disability that doesn’t change after two years.
The premium is guaranteed not to increase and you can customize it with the riders you want.
I work with all the insurance companies in Canada so I know which ones have the best disability insurance policies for realtors to fit your need and budget.
Speaking of budget, you’re probably wondering how much disability insurance costs. That depends largely on your age and the optional riders you chose but usually ranges from 2-5% of your annual income.
Ready To Get A Quote?
Now that you know more about disability insurance, what’s the next step?
You can use the tool below to request a quote. Or we can work together to find a plan that’s right for you. Disability insurance can be confusing, so let me help you find the right disability insurance for your situation and give you and your family peace of mind.
Contact us at info@briansoinsurance.com or 604-928-1628 for a free consultation.
Get Your Disability Insurance Quote Now
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