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Term vs. Permanent Life Insurance: What You Need to Know

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RBC Insurance
A man wondering if permanent life insurance is worth the cost

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Both types of insurance can protect your loved ones and their futures, but not all life insurance policies are the same. Different products have features that can help you meet your personal needs and goals, whether you’re growing your family, getting ready for retirement, or just planning ahead.

Key takeaways

  • Life insurance helps protect your loved ones from unexpected costs when you pass away.
  • There are two main types of life insurance: term and permanent life insurance.
  • Term life insurance provides coverage over a fixed amount of time with often affordable monthly or yearly payments. However, your beneficiaries won’t receive a payout if you live beyond your policy’s term.
  • Permanent life insurance costs more upfront but covers you for life, even if there are changes in your health.
  • Some permanent life insurance policies also work like investments. If you cancel early, you can receive the policy’s cash value.

Life Insurance Basics

Life insurance is a great way to help your loved ones meet financial goals or commitments, after you pass away. It’s also a way to ensure they’re able to:

  • Pay for final expenses, such as funeral costs
  • Pay off a mortgage or other debt
  • Cover the costs of raising children
  • Put aside funds for retirement

There are two basic types of life insurance: term and permanent. The cost of your life insurance policy depends on your personal situation, factoring in things like your age, gender, health status, habits (like smoking and drinking), and any activities that may be considered risky (like motorcycling). However, in general, term policies are more affordable than permanent ones.

It’s important to note that not everybody is insurable. There are instances where something like a pre-existing health condition may affect eligibility to buy life insurance. However, there could still be options, like guaranteed life insurance policies that offer a lower death benefit (the amount paid out by the life insurance company) at a higher premium.

What is term life insurance?

Term life insurance is often the most straightforward and affordable way to get coverage. You pay an affordable premium (a regular monthly or yearly fee), and in return, receive life insurance coverage for a defined amount of time (called a term), such as 20 years. When your term ends, your insurance fees also end, and your loved ones are no longer eligible to receive a death benefit when you pass away.

Term life premiums

With term life insurance, you choose how long you’d like to pay premiums for, such as 10, 20, 30 or 40 years. The length of your term and the amount of coverage you choose affects the price you’ll pay each month, which could be as low as $13 a month[1] (paying for policies yearly is also an option). While coverage is temporary, you may have options to convert to long-term coverage later if needed.

Benefits of term life insurance

There are many benefits to term life insurance, including:

  • Flexible terms: Flexible policy terms commonly range from 10-40 years.
  • Affordable rates: Monthly or annual fees are guaranteed to stay the same for your entire term.
  • Accessible policies: Medical exams may not be required depending on your policy and terms.
  • Customizable add-ons: Policies can be adapted to meet changing needs over time or include coverage for children (such as a children’s term rider, which provides life insurance for children as well).
  • Tax-free death benefit: Your beneficiaries will receive a lump sum, tax-free benefit if you pass away, offering extra stability at a critical time.
  • Convertible options: Some policies have the ability to convert to a permanent or universal life insurance policy before the age of 71, with no health or medical exams needed.

Drawbacks of term life insurance

Terms can run out: Living beyond your term means your policy ends without your beneficiaries getting a benefit payout. However, there may be options to continue or renew your policy or convert it into a permanent policy.

Eligibility can change: As we age, our health circumstances also change. Buying life insurance when you’re younger can make policies more affordable. For example, term insurance is usually easier to qualify for when you’re younger and may be more challenging to qualify for when you’re older, or become more expensive to buy.

What is permanent life insurance?

Permanent life insurance covers your entire life, regardless of your age, how long you live, and your health status. Depending on the policy it can also help with estate planning needs, like costs associated with transferring assets to your partner or kids. Permanent life insurance premiums can be paid monthly or yearly, just like term insurance, but coverage remains in place when your payments end. Like term insurance, buying life insurance when you’re younger and healthier can make policies more affordable. If you cancel a permanent life policy before your death, you’ll receive the cash value of your policy (minus any fees from managing the plan associated with the policy).

Some permanent policies also allow parents or grandparents to transfer a life insurance policy to a child. That way, they have life insurance coverage as they grow up, and if the child develops an illness or health condition that would make them uninsurable.

Common types of permanent life insurance are:

Participating Whole Life Insurance: These policy premiums and benefits don’t change over time. Because you’re paying into the policy it can be structured so that it’s paid up (reaches full value and monthly payments end) after a certain period of time, like 10 or 20 years, or once you reach 100 years old. Once a policy is paid up, coverage still remains in place. With participating whole life insurance the policy’s invested assets are professionally managed by the insurance company, not the policy holder.

Universal Life Insurance: These flexible policies allow you to update policy premiums and benefits over the years. They can be structured so that you overfund your policy (pay more than the minimum monthly fees required) earlier in life to raise the cash value up front, and offset the cost of premiums later. This can be really helpful for people anticipating retirement or another fixed-income situation down the road. With universal life insurance the policy holder is involved with managing the assets in the policy.

T100 permanent life insurance: This type of permanent life insurance policy covers you for life but without the investment and cash-value benefits of other permanent policies. Like term policies, you pay your monthly or annual contribution fees and are covered.

Benefits of permanent life insurance

Permanent policies have a range of benefits, on top of paying out a benefit when you pass away. Additional benefits include:

  • Dividend reinvestment: The dividends you earn in the policy can be reinvested, increasing the value of the policy’s death benefit over time. As the value of your death benefit grows, so does the cash value of your policy.
  • Tax-deferred growth: Your policy’s annual cash value can grow without incurring annual taxes, but it is subject to limits set by the Income Tax Act.
  • Options to use your cash value: You may request to use your policy as collateral for a loan from a financial institution, subject to the lender’s requirements. You can also access the funds in your policy to supplement retirement income or if you have an illness.

Drawbacks of permanent life insurance

As these policies last your lifetime, they tend to cost more than term life insurance, making them less affordable in the near term.

What are the differences between term insurance vs. permanent life insurance?

Below is an overview of the differences between RBC Insurance term and permanent life insurance policies and some answers to common questions.

 

Term Life

Permanent Life

Coverage Timeframe

Usually varies: 10 to 40 years, with the option to renew for another term

For life

Coverage amounts

$50,000 – $25,000,000

Amounts depend on type of product and age of the insured.

$25,000 to $25,000,000

Medical Exam

May, or may not, required depending on the term product

Typically required

Tax-free death benefit

Yes*

Yes*

*Note that probate fees are applicable if you have not designated a beneficiary and the proceeds of your policy become part of your estate.

How Do I Know Which Policy Is Right For Me?

While both permanent and term life insurance provide a payout when you pass away, permanent life insurance offers additional benefits that may be worth the additional cost to you.

Here are some questions to consider when choosing a life insurance policy:

  • Do you want the guarantee of life insurance coverage in place for as long as you live?
  • Are you concerned that you may become uninsurable over time?
  • Are you seeking an additional tax-deferred growth opportunity to build up savings beyond your Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP)?
  • Are you more interested in ensuring affordable life insurance coverage now, versus a product that combines insurance and investing?
  • Will you only require life insurance coverage for a defined period? For example, you might want to ensure you have funds available to pay the costs of your child or children’s post-secondary education or to cover your remaining mortgage balance.

Term Life Insurance

Permanent Life Insurance

Universal Life Insurance

Participating Whole Life Insurance

An option for shorter-term needs if:

●      Others depend on your income

●      You have debts that need to be paid off in the event of your death

●      You are in need of a cost-efficient solution

An option if in addition to lifetime insurance coverage:

●      You’re looking for a tax-deferred growth opportunity

●      You want to take a hands-on approach to managing the investment risk of your life insurance policy

An option if in addition to lifetime insurance coverage:

●      You’re looking for a tax-deferred growth opportunity combined with the comfort of guarantees

●      You want to take a hands-off approach to your life insurance policy by benefiting from the investment expert

Common Questions:

How long does a life insurance policy last? Permanent life insurance provides coverage for as long as you’re alive, regardless of age or health status. Term life insurance covers you only for a specific period, known as a term, such as 10, 20 or 30 years. As you age, term insurance may be more challenging to qualify for and more expensive to buy.

What do life insurance premiums pay? With both types of policies, you’re entering into a contract with an insurance company to pay the death benefit you’ve agreed on if you die while the insurance coverage is in force. This death benefit can range from $25,000 to $25 million, depending on your selected coverage level.

Is my life insurance policy considered an investment? In addition to the guaranteed death benefit, some permanent insurance policies, such as Universal Life and Whole Life, include an investment component. This component, called the embedded cash value, grows without being taxed yearly. You can use the cash value as an emergency fund by withdrawing or borrowing against it before the person insured under the policy passes away. If you withdraw or borrow from the policy, some income tax might be payable.

Will my beneficiaries need to pay taxes? When the person insured under the policy passes away, the beneficiary will receive a lump sum death benefit that isn’t taxable.

Will I need to manage my life insurance policy? Different options are available, depending on how hands-on you want. Some permanent life insurance policies that include investment options, such as RBC Growth Insurance® are managed by RBC Insurance, so you can be hands-off and let the company manage ongoing changes.

  1. Rate based on a $100,000, Term 10 policy for a male, age 37, non-smoker.

*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

Home > Discover & Share > Page 6

Why Parents Need to Buy Life Insurance

10 Min Read
RBC Insurance
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Just like unexpected bills can throw plans off track, it’s hard to imagine what could happen if you or your partner were suddenly left to cover all of those costs alone. Life insurance can cost as little as $13 a month* but create a safety net for your children as they grow.

Life insurance is an important part of a larger discussion around family finances and ways to protect your family’s financial wellness and overall well-being. To buy life insurance, parents pay a monthly or annual cost (called a “premium”) for a set number of years (called a “term”), so loved ones can receive a lump sum of money when you pass away. How much money they receive depends on the plan you purchase — it could be anywhere from $25,000 to $25 million — but it can be enough to help your family bounce back, cover funeral costs, stay in their home, or go to university one day.

Understanding how life insurance impacts your family’s finances is the first step to putting them on the path to a more secure and stable financial future.

Why is life insurance important for parents?

Protecting your family’s future

You’d do anything to protect your family right now. What about when you’re not here? Life insurance can help you leave money for your partner and children, safeguard your family’s financial future, and try to ease any future burden on them — which can help ease your mind now. Signing up for a plan now means that you’re covered right now, and not relying on savings to build up over the long term.

The financial impact on a family if a parent passes away

Losing a parent early or unexpectedly can have a devastating impact on families. Without life insurance coverage or savings, your surviving partner and kids may find themselves unable to cover their costs at all. Some common challenges include:

  • Inability to make mortgage payments and having to move out of the family home.
  • Scrambling to cover unexpected bills, like final expenses including funeral expenses.
  • Inability to meet daily expenses, like monthly bills and car payments.
  • Unable to save for children’s education in the future, or having to cash out education funds to pay for other bills now.

Aside from covering costs, life insurance benefits can help give your family members a much-needed boost and help them achieve their dreams, like having enough money to attend the school of their choice, the funds to start their own business, have their dream wedding, or even travel.

How much life insurance do parents need?

There’s no magic number when it comes to how much life insurance coverage you need for your family. It may depend on your age, the ages of your kids, your phase of life, your family’s size, and your ongoing financial needs. When determining the amount of life insurance coverage you want for your family, it’s important to consider factors like:

  • How many dependents you have
  • If you’re the sole income or main provider
  • What your family’s debt load is
  • If your house has been paid off
  • Whether you have other investments that can cover costs for your family, such as a Registered Retirement Savings Plan (RRSP)
  • Personal goals like wanting to pay for your children’s educations or weddings in the future

As well, the more coverage you have, the higher the monthly premium payment is likely to be. If money is already tight, you may choose a coverage amount that has a lower monthly fee and meets your short-term needs.

Some other ways life insurance can help parents prepare for the unexpected include:

Paying off debts and final expenses

Many people don’t realize that some debts and loans, such as private student loans, aren’t forgiven when you pass away. Life insurance can help you cover those debts and protect your loved ones from taking on those costs after you’re gone. Not having to pay down loans and being able to pay out mortgages could lighten the load of their daily living expenses.

Covering funeral expenses and other end-of-life costs

Funerals and end-of-life expenses, such as legal fees and taxes, can cost thousands and can catch families by surprise. Life insurance can help cover these costs and help pay for the funeral you want.

Providing for your children’s education

School is expensive. It can cost many thousands to put kids — or multiple kids — through college and university. Life insurance can help ensure your family doesn’t have to make tough choices down the road. Both term life insurance and permanent life insurance death benefits can be used to cover education costs if you pass away. As well, some permanent life insurance plans have the option to cash out the money you’ve invested so far while you’re alive and help your kids out along the way.

Estate Planning

Life insurance can help reduce or even eliminate the government tax paid on your assets when they get transferred to your family, to ensure a smoother transition. Some permanent life insurance plans are tax-sheltered investment opportunities, which means you can add money and grow your investments along the way, knowing your family won’t have to pay taxes for receiving it.

Supporting a spouse or surviving partner

When a spouse or partner passes away, the surviving partner is suddenly responsible for all of the bills — the mortgage, the groceries, daycare and other bills can pile up quickly. Life insurance is one way to help keep taking care of your partner long-term, so they can keep living the lifestyle they’re used to. As well, some life insurance plans offer joint coverage options or options for insuring all family members.

Life insurance as a long-term investment

Life insurance can act as an investment vehicle. Depending on the specific plan, permanent life insurance may be a way to invest and grow your wealth while protecting your family’s financial future. Some choose it for its flexibility over other investment plans, like Registered Retirement Savings Plans (RRSPs) and Registered Education Savings Plans (RESPs) which have defined purposes (paying for retirement and education costs). You and your loved ones can use the money for whatever you want. It could also help your family with daily living expenses, purchasing a car, paying off debts, putting a down payment on a home, or taking the dream trip you always talked about — anything they choose.

Choosing the right life insurance policy for your family

The different types of life insurance policies available

Term life insurance: Term life insurance plans are an option for young families who prioritize affordability and short-term protection or are prioritizing paying off debts and paying into other plans, like an RESP. Term plans are more affordable than permanent plans in the short term and fees stay the same throughout, so you can predict your expenses. You pay a small amount over a set period of time (called a term), usually between 10 and 40 years, and are covered as long as you’re making those payments within that term. Coverage expires when your term runs out or you stop paying (however, there may be options to convert it to a permanent plan down the road).

Permanent life insurance: Permanent coverage is more expensive than term coverage upfront but it covers you for life, even when you’ve finished your payment term. There are several types of permanent life insurance plans, like Whole life insurance, Universal life insurance, and T100 life insurance.

Whole life insurance fees won’t change over time. You will still be insured for life, even when your payments end. Some people who like to take a “set it and forget it” approach to their finances and investments may choose this hands-off option.

Universal life insurance plans are more flexible types of permanent plans, allowing you to update your policy premiums and benefits in the future, so you can adapt to your changing life. Some people may choose this option because they love being hands-on with investments and enjoy managing investment risks for the possibility of more growth.

T100 life insurance, also known as Term 100 life insurance, is a simpler permanent plan. It offers lifetime coverage like other plans but without investment perks. You pay a set fee each month or year for the rest of your lifetime, or until you reach age 100.

How to choose a policy that meets your family’s needs

Choosing a life insurance plan now can help you set your family up for success later and protect your family’s financial future.

How much life insurance coverage does my family need?

There are many different factors that determine how much coverage you may need. Consider things like your annual salary, how long you want to cover your family, how many children or dependents you have, and how much debt you carry, like your mortgage balance.

Can I add beneficiaries later, like if I have more children?

Of course! You can change and add beneficiaries at any time, including dependents like children, grandchildren, parents, or partners over the years.

What is the best age for parents to buy life insurance?

There is no ideal age to buy life insurance. Parents may choose to buy plans before they have kids or wait until later in life. However, because older people tend to have more health issues, signing up for life insurance at a younger age can make it easier to qualify and help you if health issues arise in the future.

Can I insure individual members of my family?

Depending on your life insurance plan, you can insure yourself, sign up for joint coverage for you and your spouse, get coverage for future spouses, and even insure your children.

Are death benefits taxed?

A death benefit is the lump sum of money paid out to your loved ones or beneficiaries when you die. It’s tax-free, so your family can avoid being caught off guard by unexpected fees or deductions.

Can I receive money for a critical illness?

Death benefits are only paid out when you pass away, but some permanent life insurance plans have options to cash out the value you’ve paid into the plan while you’re still alive. This can be a way to help cover expenses of an unexpected critical illness, or another unexpected major cost.

Parents have different reasons for wanting life insurance at different life stages. A licensed insurance advisor can help you ask the right questions and develop a personalized plan that will ensure you make the right choice for you and your family.

*Rate based on a $100,000, Term 10 policy for a male, age 37, non-smoker.

*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

Home > Discover & Share > Page 6

The Difference Between Payout Annuities and RRIFs

10 Min Read
RBC Insurance
Elderly retired couple enjoying a hike by the beach

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Both options offer a way for retirees to create an income stream from their RRSPs to help meet their financial needs, but they differ in the way they operate and the financial situations they best suit.

When planning for your retirement, you’ll want to understand the differences between the two options to determine which one might be the right fit for you. You may even consider a combination of both products.

Once you have a better understanding of the options available to you, you’ll be able to make an informed choice that allows you to enjoy your retirement years to the fullest.

Key takeaways

  • There are important differences between payout annuities and RRIFs, and each one has its own set of potential pros and cons.
  • Payout annuities provide guaranteed stable income payments for a fixed term or for life.
  • RRIFs offer flexibility in terms of when and how much you withdraw (subject to annual minimum withdrawal requirements), as well as control over your investment, but they come with greater risk due to market fluctuations.
  • Your personal circumstances and financial goals in retirement are two key factors to consider before you invest in a specific product.

How do payout annuities work in retirement?

A payout annuity is an insurance product that provides guaranteed income for a set term or for life—it’s up to you to decide. When considering options for your RRSP, payout annuities may be a good choice for people who are:

  • Risk-averse when it comes to market fluctuations
  • Looking for a guaranteed stream of income for life or for a set period of time
  • Looking for fixed and regular payouts
  • Concerned about outliving their retirement savings
  • Lacking the time and skills to manage their own investments (or simply don’t want to).

There are several factors to consider when you’re selecting your payout annuity:

  • How often you’d like to receive payouts. Typical payout schedules are monthly, quarterly, semi-annually, or annually.
  • Do you want to guarantee income for yourself and your spouse/common-law partner, or just yourself?
  • Do you want added protection with a guaranteed period?

Those who choose to invest a portion of their retirement savings into a payout annuity could benefit from a guaranteed income stream with regular payments and a sense of security in knowing how long their income stream will last, whether that’s for a fixed term or for life.

What are some of the different types of payout annuities?

The type of payout annuity you choose will depend on your financial goals and your family’s needs. There are many options available, and each one deserves careful consideration. Here are three common types of payout annuities.

Single Life Annuity

This type of payout annuity provides a series of guaranteed income payments for the life of one person (known as the “annuitant”). When the annuitant dies, the payments stop.

Joint Life Annuity

A joint life payout annuity provides a series of guaranteed income payments for the lives of two annuitants (usually the individual and their spouse or common-law partner, though sometimes also a financially dependent child) during a joint lifetime. When one of the annuitants dies, the payments will continue to be made to the surviving annuitant until the end of their life. This is also sometimes called a “survivor annuity.”

Term-certain Annuity

The key difference in this type of payout annuity is right there in the name—instead of providing payments for life, a term-certain annuity ends on a specific date (at the end of the term that was agreed upon when the annuity was initially set up), or until the individual reaches a certain age.

The benefits of payout annuities

A payout annuity is an effective, easy-to-manage solution that provides you—or you and your spouse/common-law partner, if you choose—with a guaranteed level of income for the rest of your life or for a specified number of years. It can help cover your fixed expenses during your retirement years. That’s why it’s considered a foundational product for a well-balanced retirement portfolio, as it’s reliable and offers a level of predictability and stability once you retire.

Other benefits include:

  • Income security: Regular guaranteed payments are unaffected by changes in interest rates or the stock market.
  • Tax benefits: The amount directly transferred from an RRSP to buy an annuity is not considered a taxable income. Only the payouts from the annuity are considered taxable income and, as a result, they provide some degree of continued tax deferral.
  • Estate planning: A spouse/common-law partner or beneficiary can be added to receive the remaining payments should the annuitant die before the end of the guarantee period. The amount goes directly to the spouse or beneficiary and does not have to go through probate.
  • Easy management: Once you purchase your fixed payout annuity, you’re set. There are no ongoing investment decisions to make.

Considerations and potential drawbacks of annuities

As anyone who’s ever invested money knows, greater flexibility and potential for growth typically come with greater financial risk. Market volatility can affect or cause irreversible damage to your RRIF investments. It may not be a wise strategy to opt for high-risk investing in your retirement years. Careful attention needs to be paid to your investment strategies within your RRIF.

Consider consulting an investment professional for monitoring and advice on where to invest your RRIF funds. Depending on market activity, adjustments should be made to your RRIF portfolio, so your retirement savings remain as secure as possible and your financial needs can be met as they change over time.

Another potential drawback is that your RRIF might not provide a guaranteed income for life. There’s a chance you’ll outlive the savings in your RRIF.

How do RRIFs work in retirement?

If flexibility is a priority for your retirement years, then a RRIF may be an option to consider when your RRSP matures. They’re a popular choice when converting RRSPs into a retirement income plan, as they offer flexibility and allow you to continue to make and manage all your investment decisions.

You’ll need to convert your RRSP to a RRIF by the end of the year you turn 71 (or sooner, if you need income). Your investments transfer directly and don’t have to be liquidated. And similar to an RRSP, the growth earned in a RRIF is not subject to annual taxation. Only the amounts withdrawn are subject to taxation.

The benefits of RRIFs

If you’re looking for greater financial choice in your retirement years, RRIFs might be able to offer you that. In addition to flexibility, they can also provide more control if you wish to make specific choices about where and how to invest your savings. Those decisions might result in growth and a higher income within a RRIF. Smart investments within a RRIF can also lead to a greater potential to leave behind a legacy for your family and beneficiaries.

Instead of fixed and regular payments, if you invest in a RRIF, you can withdraw variable amounts from your plan (subject to minimum annual withdrawal rules) as your financial needs change.

There are many variables to consider when withdrawing money from your RRIF, so speak to your financial advisor to understand the benefits and risks.

Considerations and potential drawbacks of RRIFs

As anyone who’s ever invested money knows, greater flexibility and potential for growth typically come with greater financial risk. Market volatility can affect or cause irreversible damage to your RRIF investments. It may not be a wise strategy to opt for high-risk investing in your retirement years. Careful attention needs to be paid to your investment strategies within your RRIF.

Consider consulting an investment professional for monitoring and advice on where to invest your RRIF funds. Depending on market activity, adjustments should be made to your RRIF portfolio, so your retirement savings remain as secure as possible and your financial needs can be met as they change over time.

Another potential drawback is that your RRIF might not provide a guaranteed income for life. There’s a chance you’ll outlive the savings in your RRIF.

Choosing between payout annuities and RRIFs—factors to consider

Personal circumstances and financial goals

Here are some things to consider when choosing an income stream strategy for your retirement years:

  • Your (and, if applicable, your spouse or partner’s) age and health, expected longevity, and possibility of surviving beyond that age.
  • Your retirement goals, including your desired lifestyle, expenses, and what you hope to leave behind for your family and beneficiaries.
  • Your own abilities for monitoring your investments and making investment decisions on a regular basis as you age. Assess these honestly.
  • Your tolerance for risk in terms of market fluctuations. Would the negative impact of a market downturn on your investments be financially devastating?

Risk and return analysis

Finding a balance between risk and return that suits both your personal preferences and your financial position is important. Of course, higher-risk investing might be enticing with the possibility of higher potential returns. Good decisions and the right market can offer growth within your RRIF, but how much risk are you willing to tolerate?

With a payout annuity, the market can’t affect the retirement income. But you’re giving up growth potential and control over your money in exchange for stability.

Tax considerations

Withdrawals from RRIFs and payouts from registered payout annuities are considered fully taxable income for the year in which they take place.

When a RRIF annuitant passes away, the fair market value of the RRIF investments will be included as income in the final tax return of the deceased annuitant, unless it can be rolled over to the surviving spouse or common-law partner, child, or even a grandchild.

If the annuity does not have a guarantee period, or the guarantee period has ended, the payout ends when the annuitant (or the surviving annuitant, in the case of joint life annuity) dies. As a result, there’s no additional income reporting.

If the guarantee period hasn’t ended when the annuitant dies, and the surviving spouse or partner is the beneficiary, the payouts made for the remainder of the guarantee period will be taxable income to the receiving spouse.

However, when a lump sum payment of a commuted value (the present value of the future payouts for the remainder of the guaranteed period) is made to the beneficiary, it’s considered taxable income to the deceased annuitant.

The tax considerations discussed here are general in nature. It’s important to seek professional independent tax and legal advice before taking any action.

If you’re planning your estate and have a RRIF and/or a payout annuity, make sure your financial advisor knows your wishes and that you understand the tax implications of the various options available for you and your beneficiaries.

*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

Home > Discover & Share > Page 6

Planning For Retirement With Spousal RRSPs

4 Min Read
Maxine Betteridge-Moes
Two men looking at laptop and making notes on a paper.

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Planning for retirement as a couple can be a balancing act as you attempt to blend individual goals and needs into a unified financial vision. It starts with a discussion of expectations — namely, what kind of lifestyle do you hope to enjoy in retirement and how much income you’ll need to attain it. For example you may want to purchase a vacation home or start a new business in retirement. A spousal RRSP can help you and your partner even out each of your retirement savings. This way, when you retire, you’ll both be able to withdraw a similar amount of money from your RRSPs based on your needs.

What is a spousal RRSP?

A spousal RRSP is an investment account for your spouse’s or common-law partner’s retirement. If you earn more annual income than your spouse, you can contribute some or all of your individual RRSP contribution into a spousal RRSP account registered under your spouse’s name.

What are the benefits of having a spousal RRSP?

A spousal RRSP allows you to:

  • Save on taxes: A spousal RRSP allows you to “split” your retirement income and find tax efficiencies as a couple if you fall under a lower tax bracket when you withdraw from the account.
  • Invest for retirement: You can contribute money each year into a spousal RRSP, tax is deferred on that money until it is withdrawn.

A spousal RRSP with a segregated fund can help you provide protection to your loved ones. You can hold segregated funds in an RRSP account to help you protect, grow and preserve your money. It can help you reach your retirement goals and guarantee that your beneficiaries receive a certain percentage of your investments when you pass away.

Split your contribution with a spousal RRSP

If you and your spouse earn different levels of income, a spousal RRSP can help you “split income” to even out your annual income tax payments and save on taxes when you eventually withdraw from the account. Take this example:

  • Deborah earns $100,000 annually, and Jack earns $50,000.
  • As spouses, Deborah and Jack are each able to contribute up to 18% (or the CRA established limit for that year) of pre-tax earnings from the previous year into their individual RRSPs.
  • This would mean Deborah can contribute $18,000, and Jack could contribute $9,000.
  • If they open a spousal RRSP where Deborah is the contributor (because she earns more) and Jack is the recipient (because he earns less), Deborah can split her $18,000 contribution and contribute $4,500 to her own RRSP and $4,500 to Jack’s spousal RRSP.
  • Jack may still contribute $9,000 to his own RRSP and they will both have $13,500.
  • Deborah will get a tax deduction for her contributions. Jack will be able to use the funds from the spousal RRSP in retirement and he will be attributed the income (for tax purposes) for withdrawals (in retirement).

A spousal RRSP allows Deborah and Jack to equalize their retirement savings between them so that they have a pool of savings and pay less in taxes upon withdrawal each year of retirement.

This “split income” strategy can help you build a nest egg that provides each of you with a source of income in retirement and a way to manage your taxes efficiently.

What happens to a spousal RRSP if we break up?

Should you and your partner end your marriage or common-law partnership, your spousal RRSPs will be treated the same as your other assets. This means that your RRSPs will be split and can be transferred tax-free.

What happens to a spousal RRSP if one partner dies?

If one RRSP contributor dies, it’s possible to roll over the RRSP tax-free to the surviving spouse or common law partner. This means that the income from the spousal RRSP is transferred to the living spouse or partner and is reported on the beneficiary’s tax return for the year. Spousal RRSPs can be a potentially useful estate-planning tool to provide a tax-free inheritance upon your death.

How do I set up a spousal RRSP?

You can set up an RRSP account with a Segregated Fund and start saving by setting up automatic contributions. Add insurance as a part of you and your spouse’s retirement planning today.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

Any amount that is allocated to a segregated fund is invested at the risk of the contract holder and may increase or decrease in value. RBC Guaranteed Investment Funds are individual variable annuity contracts and are referred to as segregated funds. RBC Life Insurance Company is the sole issuer and guarantor of the guarantee provisions contained in these contracts. The underlying mutual funds and portfolios available in these contracts are managed by RBC Global Asset Management Inc. When clients deposit money in an RBC Guaranteed Investment Funds contract, they are not buying units of the mutual fund or portfolio managed by RBC Global Asset Management Inc. and therefore do not possess any of the rights and privileges of the unitholders of such funds. Details of the applicable Contract are contained in the RBC GIF Information Folder and Contract at silver.rbcinsurance.com/gif.

Home > Discover & Share > Page 6

How To Create the Right Retirement Plan For You

7 Min Read
RBC Insurance
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Managing your finances in retirement may present challenges, but careful advance planning and advice from a financial advisor can set you up for success. It also might help to ease some of the current anxieties you may have about ensuring a sustainable and sufficient retirement income.

Key takeaways

  • A well-thought-out retirement income plan will take into account your future expenses and desired retirement lifestyle.
  • Factors to consider in retirement planning include your tolerance for risk and your need for flexibility versus your desire for stability.
  • Payout annuities are insurance products that can provide you with a guaranteed income stream for life.
  • A financial advisor can help support you in assessing different strategies for ensuring a retirement income stream that will suit your needs and goals.

Understanding your retirement income needs

“How much money do you need to retire?” It’s a question many of us come back to again and again. A recent Ipsos poll conducted for RBC Insurance reports that more than a third of Canadians feel anxious about saving enough money to support them in their retirement years, and this feeling of worry increases with age.

Understanding your retirement needs and goals is the first step to creating an income plan that will meet your future financial obligations and help ease the stress and anxiety about your retirement finances.

Ask yourself about the expenses you might face in retirement. Will you have mortgage payments? Do you plan to travel? It’s important to have a clear picture of the type of retirement lifestyle you’re aiming for, as well as an accurate estimate of your future living costs.

A financial advisor or retirement planning specialist can help you estimate your retirement expenses and assess your potential retirement income sources, including the Canada Pension Plan, pension plans relating to your current and past employment, and retirement savings, such as RRSPs.

Creating a retirement income plan

A comprehensive retirement plan will take into account your financial situation, your future needs and goals, and your tolerance and capacity for risk in your retirement years. A financial advisor should look at all of these factors when helping to guide you toward an income plan that’s right for you.

Some of the key factors you’ll want to discuss are:

  • Your tolerance for risk in terms of market fluctuations
  • Your investment goals when it comes to growth within your retirement fund
  • Your desire for flexibility and liquidity versus your need for stability
  • Your personal health and potential longevity; and
  • Inflation and how it can affect your purchasing power during your retirement years

A financial advisor can support you in designing a plan that suits your needs and goals, whether it’s a straightforward strategy or a diversified approach to generating your retirement income.

Payout annuities as a retirement income stream

A payout annuity is a type of insurance product that offers a stable retirement income. It can give you financial security and stability when you retire, offering you regularly timed guaranteed income for as long as you want…even for life! Together with your advisor, you can choose the type of annuity that best suits your needs.

RBC Insurance offers several kinds of payout annuity solutions.

  • Single life payout annuity: This payout annuity provides a guaranteed income for one person until the end of their life, with payments based on the amount of their initial investment. The payments stop when the plan holder dies.
  • Joint life payout annuity: A joint life payout annuity offers guaranteed income for the lives of two people. It allows for a second annuitant (or beneficiary) to be added to the policy—often a spouse or a partner. Payments continue to be made to this person after the annuitant dies.
  • Term-certain payout annuity: Instead of providing payments for life, a term-certain payout annuity ends on a specific date—the end of the term that was agreed upon when it was initially set up. With this type of payout annuity, a beneficiary can be chosen to receive the remaining payouts if the annuitant were to die before the end of the term.

Payout annuities are one product option that can play an important part in a retirement portfolio and can alleviate concerns about outliving your hard-earned savings.

Benefits of payout annuities in retirement income planning

Payout annuities are reliable and stable. Regular guaranteed payments offer a degree of predictability for retirees and are a hands-off option for those who may not wish to actively manage their investments. Fluctuations in the market do not alter these regular, guaranteed payments, and the money invested in them isn’t taxed until a payout is made. A financial advisor can inform you about some of the potential benefits.

The biggest advantage of purchasing a single life or joint life payout annuity is the potential to have an income stream for life.

Factors to consider when evaluating payout annuities

Not all insurance products are created equal, and this goes for payout annuities, too. If you’ve decided to invest in a payout annuity, begin by choosing a provider with a strong reputation and a trusted track record. Come equipped with questions about any attached fees or initial expenses and ask about additional options or features that can help you tailor your payout annuity to better fit your needs.

Incorporating payout annuities into retirement income planning

When planning for retirement, you can seek the assistance of a financial advisor to help decide what type of payout annuity works best to generate income during your retirement. Payments can be timed to be delivered monthly, quarterly, semi-annually, or annually, with the aim of supplementing other sources of income, such as pension plans, investments, and other savings.

Understanding the risks and limitations of payout annuities

Talk to your financial advisor about both the benefits and risks of a payout annuity plan. Purchasing an annuity means that your money is locked in. You’re trading liquidity and flexibility for stability and a guaranteed income for life. If you decide you want to invest elsewhere, according to profitable market conditions, you will not be able to transfer the money in your payout annuity to another financial product. For this reason, investing in a payout annuity should represent only a portion of your total retirement portfolio.

The risks tied to payout annuities include your purchasing power being reduced by inflation. When prices rise, your payouts stay the same. Changing interest rates present another limitation. Buying a payout annuity when interest rates are low can mean lower returns during your retirement. However, in some cases it may be smart to act immediately and not wait.

Other important things to consider

Payout annuities are a solution that you may want to consider as part of a well-diversified retirement plan. If you’re ready to begin retirement planning, consider speaking with an RBC Insurance advisor about the options available to you. They can offer reliable advice and support to help you make wise financial decisions about your future and inform you about the insurance products and investment tools that will allow you to build the kind of stable retirement income streams that suit your needs and goals.

*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

Home > Discover & Share > Page 6

What Is Disability Insurance?

12 Min Read
RBC Insurance
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Have you ever considered what would happen if you got sick or injured and couldn’t earn an income for months—or even years? How would you manage? That’s the scenario that disability insurance helps to protect you against.

Like many other Canadians, you likely wake up and then begin your workday, so you can pay for everything you need, from shelter to clothing to food. You might get to enjoy some “extras,” too, such as a family vacation, multiple streaming services, or an occasional dinner out with pals. It would be comforting to know that if an injury or illness prevented you from working, you’d still be able to pay your bills.

Here’s what you need to know to help you decide if an individual disability insurance plan is right for you.

Key takeaways

  • Disability insurance helps protect your income if you’re unable to work for a period of time due to injury or illness.
  • There are several types of disability insurance, including group plans purchased by employers for their employees and coverage through government programs such as Employment Insurance and the Canada Pension Plan.
  • Even if you qualify for government benefits or have a group plan through work, you may still have gaps in your coverage.
  • With the right plan or combination of plans, you may be able to get up to 100 per cent coverage for your income if you become sick or injured. You may also gain access to special services that can help you return to work sooner.
  • You’ll especially want to consider an individual disability insurance plan if you’re self-employed or are a high-income earner.

What is disability insurance?

Disability insurance helps to protect your income in case you aren’t able to work because of injury or illness. If, for example, you break your arm and can’t work, it can provide financial support to help you pay your bills. Your insurance may also include special services, such as additional training and/or work-site modification, to help you transition back to work when you’re ready.

What are the different types of disability insurance?

There are a several different types of disability insurance in Canada. Some are provided by employers or the government and others are purchased by individuals.

  • Short-term disability (STD) insurance: This type of coverage typically lasts for up to six months. Sometimes, employers will have an STD plan for employees that provides some support. Chat with your employer’s human resources (HR) department if you’re curious about whether or not you have a plan and what it covers.
  • Long-term disability (LTD) insurance: Long-term disability insurance tends to kick in after STD insurance ends. Typically, these benefits last for up to two years or up to a maximum dollar amount. Your employer may have a plan for its employees. Your employer’s HR department will know the details.
  • Employment Insurance (EI): The government’s EI plan includes benefits if you can’t work for medical reasons. It’s capped at 55 per cent of your earnings to a maximum of $650 per week for up to 26 weeks.
  • Canada Pension Plan (CPP) disability benefits: If you pay into the Canada Pension Plan and are under 65 years of age, you may be able to claim benefits if you have a disability that regularly prevents you from working.
  • Individual disability insurance: You can purchase your own coverage to help fill in the gaps left by other insurance plans or to protect yourself if you’re self-employed. This is also sometimes referred to as “illness and injury insurance.”

How does disability insurance work?

At its most basic, disability insurance involves paying a fee (typically monthly) in exchange for financial support if you become sick or injured. It’s a way to ensure there’s money coming in when you’re unable to work. Here are some ways in which your income can be protected:

  • Your employer pays into a group disability insurance plan on your behalf or takes money off your paycheque to help cover the cost.
  • You pay an insurance provider for your own individual coverage.
  • You receive funds from the government through CPP or EI.
  • You receive funds from some combination of the above.

With the right insurance plan or combination of insurance plans, you may be protected for up to 100 per cent of your income, even in cases of mental illness. It’s important to be familiar with your policies, so you can receive the maximum amount of benefits available to you from all your plans.

On top of a monthly payout, some types of individual disability insurance provide additional services to help you get back to work sooner.

  • Work conditioning: Rehab and occupational therapy treatments may be covered by your insurance.
  • Work-site modification: If you need special accommodations at work to be able to return (such as a different piece of equipment or a change to your desk set-up), this benefit may help pay for them.
  • Transferable skills analysis: If you can’t return to your regular job, you could receive help identifying other jobs that suit you based on your education, training, and experience.
  • Job search assistance: This can help you with resumé prep, interview practice, training courses, and more.
  • Assistive devices: Need a wheelchair, walker, prosthesis, hearing aid, or some other device? Your plan might pay for them.
  • Dependant care: If you need help caring for kids or aging parents, so you can go to a rehab program, this benefit may ease the costs.

Is disability insurance tax deductible?

Disability insurance premiums themselves are generally not tax deductible. However, in the case that you have an injury or illness and need to use your disability insurance, the benefits will often be tax free if you pay the premiums yourself.

If your employer pays all or part of your premiums, then your benefits will count as income and be taxed.

What types of illness or injury does disability insurance cover?

It depends. Some types of disability insurance cover only injury (called an “accident-only policy”) or only illness (such as critical-illness insurance), while others apply to both, but have exceptions or limitations. You may be covered in these types of instances:

  • You’re in a car accident and need months of rehab.
  • You fall off your bike and break an arm—and your job requires full use of both hands.
  • You experience mental health issues that prevent you from working.

Who should consider disability insurance?

Do you have a job? Do you have a stack of bills to pay each month? If you couldn’t work for six months, would you struggle to support your family and maintain your current lifestyle?

If you answered “yes” to all of these questions, you might want to consider disability insurance.

Here’s who else might benefit from disability insurance.

  • Self-employed people and business owners: Being your own boss can be a huge perk, but it also means you have no one to catch you if you fall. Disability insurance can offer you that protection.
  • Workers in trades, construction, and agriculture: Anyone with a job that has a high risk for injury and also requires full use of their body (from carpenters to farmers) should consider disability insurance.
  • Executives, doctors, and lawyers (and other high-income earners): If you have a high level of income and the lifestyle that goes with it, disability insurance can help protect you in cases where you can’t earn for a period of time.
  • Anyone who doesn’t have group coverage through work or who wants to top up their coverage: Some people have disability insurance through work, and others don’t. If you don’t have any kind of insurance, consider paying for it yourself. And if you do have some coverage, check to see if it’s enough, or if you should purchase a little extra.

Just about anyone who has an income (and bills to pay) should think about getting disability insurance. At the very least, you’ll have confidence that you and your family are protected if you’re unable to work for a few months—or even years.

What are the benefits of having an individual disability insurance policy?

When you purchase your own disability insurance policy, you simply have more options. Here are a few possible advantages.

  • Coverage can’t be cancelled: As long as you pay your premiums, your coverage will continue—no matter what.
  • Premiums remain stable: It’s possible to lock in your rate for non-cancellable types of individual disability insurance.
  • Wider definitions of “disability”: Individual disability insurance plans tend to cover more types of injury and illness than group plans.
  • Option for an “own occupation” rider: Some occupations make you eligible to add an “own occupation” (a.k.a. “own-occ”) rider to your plan, so you’ll receive benefits if you can’t work in your previous occupation, even if you can find work in another type of job.
  • Portability: If you change jobs, your coverage goes along with you.
  • Cost: Individual plans have more versatility than group plans, so you might find a type of disability insurance that will cost you less in the long run.
  • Option to include additional benefits: Since you’re purchasing the insurance for yourself (rather than your employer paying for it for everyone at the company), there’s more flexibility with the benefits you choose to receive.
  • Taxation: If you pay for your own insurance plan using income that’s already been taxed, any benefits you claim will be tax free.

What to look for in an insurance company offering disability insurance plans

Before purchasing any type of disability insurance, you’ll want to ask a few questions about the provider and the insurance plans it offers.

  • Terms and conditions
    • How do they define “disability”?
    • Are there any exclusions or limitations, such as pre-existing conditions?
    • What do I need to do to obtain coverage? E.g., provide medical information and/or financial information?
  • Coverage options
    • How much money will I receive each month if I’m sick or injured? (What percentage of my income will be paid? Is there a dollar limit?)
    • Can I increase my coverage after getting the policy?
    • How long will I need to wait before I receive my first payment?
    • Are the benefits taxable?
    • Will the benefits be adjusted for inflation?
    • How long am I able to receive my benefits?
    • Can I still receive benefits if I’m able to do some work, but not my usual amount?
    • Do they offer any unique options (such as an own occupation rider)?
  • Premiums
    • How much will it cost me?
    • Can I lock in my rate?
    • Will I have to pay my premiums while I’m collecting my benefits?
  • Return-to-work assistance
    • What extra services do they provide to help me return to work?
  • Access to medical professionals
    • Do they have the ability to speed up access to specialists and other health-care professionals whose expertise might help my recovery?
  • Claims process
    • How does their claims process work?
    • Who handles cases? What is their experience and knowledge level?

What is the disability insurance claim process?

In an ideal world, you wouldn’t need disability insurance, because you’d never get sick or injured. In the real world, you never know what might happen. Here’s how you would claim your benefits with RBC Insurance if you became sick or injured.

How do I make a claim?

You’ll need to fill out a claim form.

  1. If you have a group plan: Check in with your HR department to get the form.
  2. If you have an individual plan: Speak with the advisor who helped you buy the policy.

This form has various sections for you, your doctor, and your employer (if you have one) to fill out. Submit your completed form as early as you can after you become ill or injured, so you receive the benefits you qualify for as quickly as possible.

What happens after a disability insurance claim is made?

If you’re an RBC Insurance client, your submitted claim form will be assigned to a customer care specialist who has training in your specific injury or illness and will personally handle your case. They’ll contact you within 10 business days. Here’s what to expect.

  • Claim review: Your customer care specialist will call you to learn about your situation. They’ll ask questions about your condition and the potential amount of time you’ll be away from work, as well as arrange for payment of the financial benefits that you qualify for. They may also speak with your employer and physician if they need more info.
  • Decision process: It may take some time to understand your claim. Some situations, such as recovery following a routine surgery, are straightforward, and your benefits can begin almost immediately. If your claim is more complicated, it may take longer for your customer care specialist to gather all the necessary information about your financial, medical, and employment history. You will receive a written update on the status of your claim every 30 days until a decision has been reached.
  • Asking questions: If you ever have any questions or concerns, you can speak directly with your customer care specialist using a toll-free number. This specialist is your single point of contact and is familiar with your unique situation.

*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

Home > Discover & Share > Page 6

Work Burnout: How to Spot the Warning Signs

7 Min Read
RBC Insurance
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You’re exhausted before your feet even touch the floor. Your mind is a whirlwind of tasks, deadlines, and expectations. You drag yourself to work, only to feel completely overwhelmed.

Even when you clock out, work follows you home, creeping into your thoughts and robbing you of any downtime. You’re not just physically tired, you’re emotionally and mentally drained. 

This is what burnout can feel like. It’s more than just a bad day or a tough week—it’s a persistent, debilitating state of being.

Key takeaways

  • Burnout is a state of exhaustion caused by chronic stress that can have significant emotional, mental, and physical effects.

  • The three main types of work burnout are: overload, underchallenged, and neglect.

  • Warning signs of burnout include emotional exhaustion, detachment, physical symptoms, and behavioural changes.

  • Your company benefits plan may offer coverage and services to help you recover from burnout.

  • An individual disability insurance plan may provide you with additional coverage if your company’s plan doesn’t fully suit your needs.

  • If you’re self-employed, look for an individual disability insurance plan designed to help protect you in the event of burnout.

What is burnout?

This state of emotional, mental, and physical exhaustion is known as “burnout,” a term gaining prominence in the discussion of mental health in the Canadian workplace.

In the wake of the COVID-19 pandemic, burnout has become an all-too-common struggle among workers grappling with the overlapping of their professional and personal lives.

Burnout is often described as a state of chronic exhaustion caused by chronic stress that can have significant emotional, mental, and physical effects. According to both the Centre for Addiction and Mental Health (CAMH) and the World Health Organization (WHO), burnout is not simply about feeling tired. It seeps deeper, manifesting as reduced productivity, low motivation, and, often, a sense of helplessness and hopelessness.

If you think you’re experiencing burnout, make an appointment with your health-care provider to discuss your options.

Different types of burnout

While burnout can present in various ways (including caregiver burnout and relationship burnout), medical research identifies three main types of work burnout.

1.   Overload burnout

You’re an ambitious go-getter, constantly pushing yourself to the max. You often juggle a million tasks, placing unrealistic expectations on yourself that cause excess stress. Eventually, you hit a wall and crash, feeling overwhelmed and drained.

2.    Underchallenged burnout

Think of being stuck in a monotonous routine, lacking excitement or purpose. You’re like a zombie just going through the motions, feeling bored and unfulfilled. It’s as if your energy is slowly seeping away.

3.   Neglect burnout

Also known as “worn-out burnout,” this is when prolonged stress and exhaustion drain you completely. You feel emotionally and physically spent, detached, and even hopeless. Neglect burnout can happen when you aren’t getting enough support at your place of work.

What are the signs of burnout at work?

Many people don’t recognize the signs of burnout at work, or they are held back by the stigma of seeking help for their mental health. Here’s a list of some common symptoms of burnout recognized by major medical and regulatory bodies:

Emotional exhaustion

Feeling drained, overwhelmed, and emotionally depleted.

Cynicism and detachment

Developing a negative and cynical attitude toward work, colleagues, or clients, and distancing yourself emotionally.

Reduced sense of accomplishment

Feeling unproductive, ineffective, and experiencing a loss of satisfaction or fulfillment in and/or at your work.

Physical symptoms

Frequently experiencing headaches, muscle tension, fatigue, and changes in appetite and/or sleep patterns.

Behavioural changes

Withdrawing from social interactions, isolating yourself, decreased motivation and productivity, and neglecting self-care.

Recognizing these symptoms is crucial for learning how to prevent and treat burnout.

What are the impacts of burnout?

Burnout can have major effects on multiple levels: personal, professional, and societal.

Personally, it can lead to anxiety, depression, and decreased overall well-being. In a professional context, work burnout can hinder job performance, creativity, and decision-making abilities. It may also strain relationships with colleagues and affect career growth. Societally, burnout can contribute to increased health-care costs, decreased productivity, and a higher turnover rate in organizations.

What if I’m disabled due to mental health issues?

When experiencing burnout, the possibility of needing disability insurance due to mental health issues may arise. Understanding your insurance coverage (or lack thereof) is crucial. 

Depending on your type of employment, you may have access to group plan benefits, such has:

Short-term group insurance: This offers financial support for a brief period—typically, a few weeks to a few months—and is designed to cover temporary disabilities or illnesses that prevent an employee from working.

Long-term group insurance: It kicks in after the short-term benefits have been exhausted and can provide coverage for several years. It’s designed for serious, long-term disabilities or chronic illnesses that render an employee unable to work for an extended period.

However, your group plan may not provide you with enough coverage if you have to go on disability insurance. It’s important to understand the terms of your policy, what it covers, and, more specifically, what it doesn’t cover, and when you might consider individual disability insurance to make sure you and your family are looked after.

Self-employed/no insurance: For those with no coverage, seeking help and taking time off work can seem even more daunting—financially, physically, emotionally. There are options out there, such as individual disability insurance policies that offer you and your family protection in the event you make a disability insurance claim related to burnout or other mental health issues.

What are the benefits of having an individual disability insurance policy?

Navigating the effect of burnout on your own can be overwhelming, but having an individual disability insurance policy can offer a lifeline with crucial benefits, such as:

Loss-of-income benefits: If you’re unable to work due to a disability, the policy will provide a certain percentage of your income, thereby cushioning the financial blow of not being able to earn a living.

Tax-free benefits: If you personally pay 100 per cent of your premiums, then any benefit you receive is tax-free. This gets you closer to your actual income and can help you maintain your lifestyle, even while dealing with health issues.

Help with getting back to work: Disability insurance plans, such as those offered through RBC Insurance, include services that assist you in returning to work. These could involve job training programs, rehabilitation services, or even help with starting your own business.

Portable, continuous coverage: Additionally, most employee-sponsored plans end when you leave your job, putting you in a bind if you face health issues afterwards. The beauty of an individual disability insurance plan is its portability—it follows you, ensuring you’re covered even if you change jobs.

Mental health support: Perhaps one of the most valuable benefits is the robust coverage related to mental health services. For instance, the insurance provider might offer help in finding a mental health-care provider based on your preferences of where and how you want to meet. They may also offer support with job retraining if that’s the best option for you.

It’s important to remember that you aren’t alone when dealing with your mental health. Supports and resources are available to help get you back on your feet. 

*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.

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