Wrap-up: How to disaster-proof your life

Hello,

Welcome to the fifth and final challenge of the MoneySmart Bootcamp. Our final session focuses on an essential but often neglected aspect of personal finance: making your life disaster-proof.

Of course, we all know that we need to at least do worst-case scenario planning. Car insurance is compulsory. Home insurance is a no-brainer. And many people take out life insurance when they have children.

But do you have renters insurance if you are a renter? Did you write a will? Do you know what a power of attorney is? (No judgement: I didn’t know either until I started delving into personal finance.) You may not even know that these should be on your crisis preparedness checklist as well.

And even some of the obvious items on this list aren’t as straightforward as you might think. For example: Does your household contents insurance protect you against flooding or sewer jams? And does your employer’s disability insurance continue to pay if you are unable to work for more than two years? You might be surprised what you might find in the fine print.

Below is an overview of common gaps you may want to build into your disaster plan and tips on how to do it.

Pitfalls in household and tenant insurance

Just because you – or your landlord – have household contents insurance does not mean that you are adequately covered. Watch out for these three pitfalls:

• Renter’s insurance (also called renter’s insurance). Do you think your landlord’s insurance policy will cover the cost of repairing or replacing your belongings if they are damaged or stolen? think again If you rent, you need renters insurance, which also protects you if someone sues you for causing damage to other units or for injuring yourself or your property during your rental period. A general rule is to get at least $100,000 of coverage, although some recommend $1 million, depending on the value of your belongings and rental unit.
• flood insurance. Standard household or renters insurance covers things like a burst pipe and a leaking dishwasher. However, if outside water is pouring in through your door and windows, or returning to your basement, you’re probably on your own unless you’ve signed up for additional water damage coverage, which is optional. This doesn’t just apply to those who live near a river, lake or ocean. Climate change has helped flooding become the leading cause of home insurance claims in Canada – and an estimated 1.7 million homes are at risk.
• condo insurance. Condominiums – also called strata in British Columbia and parts of Alberta – have a business policy that covers the building structure itself and the common areas. Condo owners often think that’s all they need. In fact, you should get your own individual condo policy if you don’t want to pay out of pocket for things like damage to your property, extra living expenses if your condo becomes uninhabitable, or compensating your neighbor if your showers leak into their living room. You may want to speak to an insurance broker to make sure your policy properly supplements your condo company’s insurance so you don’t have to foot the bill for anything that the plan doesn’t cover or cover. Finally, exercise caution when choosing your condo at all. Rising insurance premiums and deductibles have become the bane of many homeowners. Before you buy, make sure your building has enough funds and the condominium company is putting enough money in their reserve fund, which is used to pay for repairs and maintenance. Your real estate attorney will help you with this.

Look out for this tick in your disability insurance

If an injury or illness leaves you unable to work for an extended period—or even permanently—Long-Term Disability Insurance (LTD) replaces a portion of your paycheck.

Keep in mind:

• your workplace coverage. If you have a group benefits plan at work, it likely includes an LTD policy. Some employers have coverage for work-related injuries or illnesses through provincial trade associations, which is mandatory in some industries. These employers may also offer an additional group plan.
• The catch. If you have a group plan, check your insurance booklet. Some tariffs only offer insurance cover for a limited period of time, e.g. B. 10 years. But even if your maximum coverage lasts until age 65, many insurers introduce stricter claim rules after you’ve been disabled for two years. After the two years are up, you often lose coverage unless you will be unable to perform not only your old job but any job for which you are reasonably qualified, which is known as the “any-job” test”. The risk is losing your income if you’re still too ill or injured to go back to earning your regular paycheck. If you can’t figure out if your insurer will switch to a non-occupational test after some time, you should email Human Resources for clarification.
• So what? You can buy an additional individual policy, but it will be expensive. One way to limit your premium is to choose to wait two years before receiving benefits from your personal LTD insurance. Remember: Your workplace schedule will likely cover those first two years.
• If you don’t have insurance coverage through work. If you work for yourself or a smaller employer that doesn’t offer a generous benefits package, it’s worth considering an individual policy that would replace at least part of your income. Keep in mind that disability income from an individual plan is generally tax-free. This means you can combine your regular net pay with benefits that are significantly lower than your pre-tax paycheck.

Who needs a will and what is a power of attorney?

Writing a will isn’t just for celebrities and rich uncles. And it’s also a good idea to have a Power of Attorney (POA), a legal document that provides instructions on who should make decisions on your behalf – and how – should you become unable to make your own.

Here are a few things you should know:

• Everyone needs a will — even if you’re single. If you are a parent, a will determines, among other things, who you want to look after for your children in the event of death. If you are cohabiting, a will can help your partner claim your assets, something they may not be automatically entitled to if you are not married. You may wish to have a will, even if you are single and do not have strong feelings about who should get your stamp collection. In general, a current will makes it easier for your dependents to handle their affairs. Without them, a court would have to appoint someone to administer your estate (your property, along with any debts you may have), which can take a while. A will can also help reduce the likelihood of litigation in the family.
• Two types of POA. Unlike a will, which only comes into effect after your death, powers of attorney last during your lifetime and set out your wishes regarding your care and who will act for you if you become incapacitated. With a POA for real estate, you authorize someone else to make decisions about your property and your finances. A Personal Care POA appoints someone to speak for you on healthcare decisions. It also sets out your wishes, e.g. B. whether you want to stay on life support when doctors think there is no chance of you regaining consciousness. Granted, these aren’t pleasant scenarios to think about, but they do deserve consideration. A personal hygiene POA may also be referred to as a healthcare directive or proxy agreement.
• Inexpensive options to get it done. Online services like Willful.co and LegalWills.ca work a bit like tax software – you get prompts for information and answers for questions – and allow you to create a will and POAs for an affordable fee. If you want a little more hand-holding, some law firms have set up bare-bones services to guide budget-conscious clients through the process.

Imagine that

Try this at home

• Check Your Home or Renters Insurance: Will It Cover You During Floods?
• Now dig out your employer benefit booklet. What does it say about disability insurance?
• You can get offers for disability insurance online from various insurers – start with the comparison. Don’t forget to also consider how your premium would change if you chose a longer waiting period (but don’t try to save money by opting for tighter eligibility criteria or a shorter length of coverage that you won’t carry until retirement). would).

A final word

That’s it! Congratulations on passing the MoneySmart Bootcamp. I hope everything you’ve learned over the past five weeks has helped you feel more confident about tackling some of the money decisions you face. But remember, a one-time boot camp isn’t enough for a healthy lifestyle—you have to stick with it. The same goes for personal finance: it’s a lifelong learning journey.

If you like this newsletter course, you might like it too stress test, The Globe’s award-winning personal finance podcast for Gen Z and Millennials. Listen for free wherever you get your podcasts.