Protecting What You've Created

First and foremost, forgive me for trying to induce fear in you, it’s not my intention. However, I’d like to touch on a topic that is of utmost importance to anyone self-employed or thinking about transitioning into self-employment.

The basics of self-employment: You’re in control of everything; You do what you want, when you want, how you want; And most importantly you are working for you: Your brand, your product, your service.

Some advanced realities of self-employment: You absorb all costs related to your business, supplies are not magically refreshed in the copy-room overnight, mail is not delivered to your desk, and sending something through the courier means that you’ll be receiving a bill in 8-10 business days.

One last thing: If you need to fill a prescription, see a physio, get a massage it’s covered by you; not a group insurance plan.

All these “minuses” are a fair trade-off for complete independence, control, and the feeling of accomplishment that comes with running one’s own shop.

The one thing that most people forget or have an it’s-not-going-to-happen-to-me attitude towards is what would happen if you get sick or hurt? How will you generate an income? How will you pay personal and business-related bills or debts? (Recall: disability benefits via employer group benefits are not available).  Even if you decided to close up shop for a while, what will your source of income be?

The response I often hear is “government disability programs will take care of me."  While there are federal government programs in place, it seems that you have to be in a body cast to qualify for them. Two conditions must be met in order to qualify:

The disability must be considered to be severe and prolonged as defined under CPP legislation.

You have to have made enough contributions into the CPP while you were working - when I was working, I paid into the CPP for at least four of the last six years or I paid into the CPP for at least 25 years and made valid contributions to the Plan in three of the last six years. (Source: www.servicecanada.gc.ca)

What does “severe and prolonged” mean? The definition given by Service Canada is "a severe disability [is] one which prevents you from doing your former job, or any other job, on a regular basis. A disability is prolonged when it is likely to be long term, of indefinite duration, or is likely to result in death."

If you become disabled such that the above definition applies to you, how much will you be paid? According to Service Canada statistics, the average CPP disability benefit for 2008 was $799.14 per month. In 2009, the base fixed amount was $424.43 per month plus additional amounts based on how much one contributed to CPP during their working career. The highest amount of monthly benefit paid in 2009 was $1,105.99. This is all taxable income by the way.

Something is better than nothing, however in order to qualify for the above “something,” your situation need to look pretty grim.

What is crucial when venturing out on your own is to have all your bases covered, including an “emergency” plan that will keep you afloat in case the unexpected happens.

Investing in a private disability policy is often the best way to go.  Most plans will continue to pay you as long as you are unable to work at your regular occupation (the occupation in which you were engaged at the onset of disability), benefits are not-taxable and partial benefits are also available (if you are only able to work half the time as a result of an illness or injury). They can also be manipulated to fit your particular budget.

As an example, a Registered Massage Therapist covered under a private disability plan will be paid a monthly benefit tax-free as long as the disability prevents them from working at their regular occupation. If they developed carpal tunnel syndrome such that they could no longer perform the major duties of their regular occupation, disability benefits would commence and continue until maximum age 65 or for as long as the disability prevented them from working.

CPP disability benefits will end if your condition improves and you are able to work at any occupation on a regular basis. 

Finally, some companies ofter a “Premium Refund” option which pays back all the premiums you ever paid at age 65. Consider it forced-savings; and at 65 you’ll get a cheque in the mail (tax-free).

The unfortunate truth is that over seven million Ontario residents are not covered under any type of disability plan, and the average length of disability that lasts over 90 days is 2.9 years. More often than not, bankruptcy will result. While it’s comforting to know that if you did require it (and qualify), the government would offer some assistance, it may not be enough to support you and your business.

My comments were not meant to scare but rather inform. Taking a moment to review your options to protect yourself and your business could save a lot of stress and heartache if you ever find yourself in need of assistance.