When planning for the future of a person with a disability, it is essential to prepare for unforeseen events. Illness, an accident, or death can disrupt the planned balance. Here are some key points to explore in order to build a safety net around your plan.
Life Insurance: A Safety Net That Should Not Be Improvised
Life insurance can serve two main objectives:
- Cover foreseeable financial needs in the event of death;
- Use insurance as a tax shelter to enhance the estate to be transferred.
In the context of planning for a child with a disability, the first function is crucial. It is about guaranteeing a continuity of income to maintain their quality of life.
How to Estimate Insurance Needs?
Here is a simple and personalized method, focusing solely on the needs related to the person with a disability—it does not take into account the possible needs of the surviving spouse or other dependent children:
Determine the monthly cost of living you wish to ensure for your child with a disability. For example, $3,200 per month, considering the following expense items:
- Supervised housing: $1,200
- Daily support or in-home assistance: $800
- Food: $500
- Adapted transportation, communication, leisure: $300
- Clothing, hygiene, miscellaneous expenses: $400
Subtract predictable income, such as the Quebec basic income (currently $1,650/month) and the Canada Disability Benefit (about $200/month).
Multiply the difference by the number of months to be covered, until the start of withdrawals from the RDSP or until the planned end of support.
Example:
Net monthly need: $1,350
Duration: 20 years (i.e., 240 months)
Amount to be covered: $1,350 x 240 months = $324,000
Inflation is not significant in this calculation because it does not take into account investment income that would be generated from the death benefit.
Don’t Forget: Benefits While You Are Alive
Many parents think about life insurance but forget about disability insurance and critical illness insurance. However, a long-term disability could jeopardize not only your income but also your ability to care for your child. If you are eligible, this protection is essential.
The Overall Security Budget
The key is to balance insurance premiums with available savings. Here is a practical approach:
- Calculate how much you can invest each month for your family’s security (insurance + savings);
- Discuss with an advisor the best way to allocate this amount.
L’objectif : protéger sans s’appauvrir. Évitez les couvertures superflues ou redondantes.
The goal: protect without impoverishing yourself. Avoid unnecessary or redundant coverage.
At Finandicap, we analyze each family situation to propose realistic, adapted, and above all, coherent coverage with the rest of your financial plan. Good insurance is not a useless expense: it is a way to remain protective, even in your absence.