By Kirsten McMahon, Managing Editor

A new survey that reveals one in five working Canadians wouldn’t be able to come up with $2,000 for an emergency expense is alarming, but not surprising, says Easy Legal Finance Inc. president and CEO Larry Herscu.

“With this survey and others showing that many Canadians live paycheque to paycheque, it’s difficult to find an opportunity to reduce expenses and build an emergency fund — especially if you don’t have a full handle on your finances. I also think it’s more pronounced when there isn’t a mortgage to borrow against or investment assets to draw from,” he says.

If you’re involved in an accident and are unable to work, not having a large emergency fund can be “absolutely catastrophic — both physically and mentally,” Herscu says.

“It really is key to fully understand your total financial picture because in the unfortunate event that an accident occurs, what are you going do if you can no longer work? So many people are unaware of where they are financially, never mind what they would do if they no longer had a steady income.”

Herscu points to the sad story of an Ontario couple in their late 50s who have spent more than three years living in a minivan.

CTV News reports the couple’s eviction from their Cambridge, Ont. apartment followed a lengthy battle with an insurance company over an injury the woman sustained when she was hit by a car. Even with the $1,100 a month in insurance payouts, the woman says it’s still not enough to cover the basic costs of food and rent.

“The cheapest rent for a one-bedroom, even a bachelor, here is $900,” she tells CTV. “I make $553 every two weeks from this insurance company. I’m willing to pay something. I’m not looking for a handout.”

Herscu says a big part of what Easy Legal does is offer financial support to those who have been hurt in an accident to help them pay bills while their lawyer fights for a fair settlement.

Clients complete the loan application with the support of Easy Legal’s client service representatives, who try to capture what money is coming in and going out.

“We start off with the basics, which is a discussion about income. It could be short- or long-term disability, accident benefits, or a spouse’s income. That part is easy for most people, but when you start getting into expenses you can see that often people don’t have a handle on what they spend,” he says.

“One of the biggest allocations of income most people have goes towards rent or mortgage payments,” Herscu says. “We’re finding more and more people — particularly in urban centres — who get into an accident and can no longer afford their rent. There are also a number of cases where people have to move or take in a renter/roommate to make up for the shortfall.”

When clients are made aware of how long it’s going to take to recover and get back to work and/or receive a settlement they very quickly realize they are dealing with an income gap.

He says many people expect their insurance company to cover that gap, but income replacement benefits are 70 per cent of your earnings capped at $400 per week.

“Depending on what your income is, that likely leaves a significant hole,” Herscu says. “Once they understand this shortfall, we work with them to help bridge part of that gap while they wait for settlement.”

“However, we’re only providing an advance towards their claim — we’re not replacing the settlement or their monthly income,” he adds.

Herscu says that in most cases, it can take up to three years to secure a payout.

“While our team can help a client better understand their fixed and variable expenses, it’s up to them to create a budget,” he says. “If they go through the exercise of writing down their expenses and determining what’s necessary and what’s disposable, they create a plan and set expectations — particularly as it relates to investing in their health and wellness and recovery.”