Critical Illness Coverage for Critical Times

Critical Illness Coverage for Critical Times

A real-life story from my colleague, Mark, highlights the importance of critical illness insurance. Mark’s client, Paul, had a heart attack and survived. When Mark called to check on Paul, Paul jokingly said, “I’m not dead yet. You’re supposed to call my wife when I’m gone to give her the life insurance benefit!” What Paul had forgotten was that he had also purchased critical illness insurance during a financial review with Mark. This insurance was designed to provide support while he was living, not just after his passing.

What is Critical Illness Insurance?

Critical illness insurance is a plan that provides a tax-free benefit while you're alive if you're diagnosed with a covered condition, such as life-threatening cancer, heart attack, stroke, and often 20 or more other conditions.

Why Buy Critical Illness Insurance?

Most people choose critical illness coverage to:

• Replace lost income: Helps cover living expenses if you cannot work due to illness.
• Allow a partner or spouse to take time off: Provides financial support if your loved one needs to care for you.
• Pay off debts: Helps alleviate financial burdens from loans or mortgages.
• Hire childcare or private nursing: Assists in managing additional care needs.
• Fund private treatment: Covers costs for treatments not available through public healthcare, including in the USA.
• Modify the home: Helps with necessary adjustments to accommodate your condition.
• Pay for recuperative vacations: Provides funds for rest and recovery after treatment.

The Origins of Critical Illness Insurance

Dr. Marius Barnard, a South African cardiothoracic surgeon, invented critical illness insurance. After observing the financial strain on his cancer patients, he advocated for this type of insurance to address the financial challenges that followed critical illnesses. Barnard argued that while doctors could repair physical damage, only insurers could help restore financial stability.

Types of Critical Illness Coverage

When selecting a plan, consider the following:

• Income Replacement: Coverage for one or two years of lost income.
• Debt Repayment: Coverage to pay off mortgage, loans, and other debts.

Canadian insurers offer various plans, including:

• 10 or 20-year terms: Coverage for a fixed period.
• Level terms to age 75 or 100: Lifetime coverage options.
• Paid-up options: Some plans become paid-up after 15 or 20 years, still offering lifetime coverage.
• Plans for children: Coverage for childhood illnesses.

Plan Comparisons

• Plan #1: Provides coverage until age 75 with a fixed premium. If you never make a claim or cancel the plan, there's no residual benefit.

• Plan #2: Includes coverage until age 75 with a return of premium option. For example, a 20-year return of premium plan means you can get a 100% refund of premiums if no claim is made after 20 years. This plan offers both a valuable living benefit and a forced savings component.

Financial Comparison

Choosing a plan without return of premium requires investing the cost difference. Achieving a pre-tax return rate of 8% to 14% may be necessary to match the benefits of a return of premium plan.

Final Thoughts

Critical illness insurance can provide crucial financial support during challenging times. Unlike relying on GoFundMe, other crowdfunding platforms or even grassroots fundraising, having your own insurance ensures a straightforward claim process and quick access to funds.

Consider these points:

• 2 in 5 Canadians will be diagnosed with cancer in their lifetime.
• Living benefits claims with Canada Life - Canada Life
• For more information: Critical Illness – Canada Life | Critical Illness – Wikipedia

If your advisor has not spoken to you about critical illness feel free to reach out for personalized advice at john@panago.info.

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