08/06/2014 12:32 EDT | Updated 10/06/2014 05:59 EDT

John and Jane Doe: What Kind of Insurance Do We Need?

Jane has good benefit coverage provided by her employer that provides some insurance for her and John. However, she thinks that John should consider some additional insurance because of his home-based business. So they spoke to an insurance expert about life and property coverage.

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The Life & Times of John and Jane Doe is about a mild-mannered couple and their two primary-school-aged kids -- Jill and Joey --who live about a half-hour transit ride from downtown Yourville. Jane works in a large corporation near the financial district and John runs a home-based IT consultancy firm.

They're comfortable but like most Canadian families, they're dealing with the same kind of financial challenges like: buying their first home, how to budget effectively, saving for their kids' education, saving for retirement and a rainy-day, insurance, and so on.

In this second episode, the Does have settled into their new home. Jane is back to work and John is in his home office writing a few proposals. And the kids are happy playing with the kids in their new neighbourhood. Life's grand. But what if something happened, would they be prepared? Do they have enough insurance? Do they even need insurance..?

Last Monday night, Jane came home from work with an upsetting story. Her colleague's husband had a massive stroke over the weekend. And while he didn't die from the stroke, he was left with partial paralysis on his left side and will have to endure physiotherapy for several months. Luckily the prognosis looks good. Jane has good benefit coverage provided by her employer that provides some insurance for her and John. However, she thinks that John should consider some additional insurance because of his home-based business. So they spoke to an insurance expert about life and property coverage.

Our first concern is if John got sick, would we be able to manage his treatments costs and still be able to pay our mortgage. What options should we consider?

It's a good idea to be prepared. While the diagnosis and the treatment can take a terrible toll, the financial toll can also be devastating. Recent surveys have shown that those who battle serious illnesses like cancer do end up financially vulnerable. For example, the Canadian Breast Cancer Network examined the economic impact of breast cancer and labour force re-entry after remission and found that 80 per cent of respondents had suffered financially. The average was a reduction in family income of $12,000. This is why it's important to have a financial plan in place to protect yourself and your family. So here are a couple insurance suggestions to consider while you are in good health.

Long-term care insurance: If you fell ill and you suffered a loss of independence as a result of a critical illness -- that is if you were unable to eat, dress, move, use the toilet or bathe independently -- this insurance would help pay for medical and/or living expenses. It pays a tax-free monthly benefit usually upon receiving a diagnosis. And it can be used to pay for any type of service that you choose like:

  • Expert medical advice
  • The ability to live at home with in-home and/or respite care
  • Assisted living and long-term care facilities
  • Senior day-care

Anyone between the ages of 18 and 80 can apply. Premium costs are determined by age, health, and the type of policy that you select. Some policies are set up with 20-year or lifetime periods.

Critical Illness Insurance: This coverage pays a benefit from $25,000 to $2,000,000 to insureds after a critical illness is first diagnosed.

  • It's a basic coverage that is easy to understand, affordable and ideal for most people
  • It's ideal for people under 60, especially those between 25 and 50
  • It also provides confidential assistance services and help in finding suitable resources during convalescence
  • If there haven't been any claims by the time the policy matures, the insured can receive a full refund of their premiums tax free

We're also concerned about protecting John's business. Is it possible to add this to our current home insurance?

Interestingly, a study by the Insurance Bureau of Canada states that almost 40 per cent of Canadians who operate a home-based business are not adequately insured. So it's good we're having this conversation. Some people assume that their home insurance will also cover their home-based business. It doesn't. The fact is that you need to inform your insurance company that you are running a business out of your home to ensure that you're properly protected. If you don't disclose this information to your insurer it could result in your policy being voided, leaving you completely unprotected. Even if the insurer decides not to void the policy, the business owner could be at risk that they won't be fully covered in the event of a loss. That's because home insurance policies typically have low coverage limits for equipment, tools and the instruments necessary for a business or professional service. Here are a few examples of situations that could result in a loss if you weren't protected:

Slip and fall injury: If you frequently held meetings at your home with clients and business partners, and one was injured due to slipping down stairs anywhere on your property, they could decide to sue you for damages.

Fire resulting in lost goods: Let's imagine that you use an expensive computer system for your business. If you had a fire in your home and that equipment was destroyed, your home insurance may not cover the loss. You could be looking at thousands of dollars that you would have to pay out of pocket.

In case of a break-in: Similar to the scenario above, if someone breaks into your house and steals or damages your office computers and other equipment, you may not be fully covered under your home insurance policy. Likewise, if someone stole your business computer or tablet from your car, you wouldn't be covered under a home policy. In both cases, the replacement costs could be very expensive.

Next time, Jane tells the kids to go fly a kite...