- Mr. Bernard was a gentlemen (performed the first human-to-human heart transplant in South Africa in 1967) with a great talent who successfully operated on patients allowing them to survive 5-6 years after an illness. Patients may have made a full recovery from their illnesses but he also saw the social and financial implications of living longer, they may have lived to get off the operating table but they died financially.
He recognized that although they survived, some were unable to return to work. The lingering effects of their illness, medication, surgery had a huge impact on their ability to earn income and at times were no longer able to support their families. Life insurance is a payout if the patient dies, but families would not be supported financially if they lived. He hence created a new type of insurance called critical illness that would payout if they encountered cancer, heart attack, stroke, and coronary bypass surgery.
How does critical illness help you and your family?
It would provide a tax-free lump sum benefit while living that can be used in any way the life insured saw fit.
Most common uses of a critical illness payout:
- 1. Pay for drugs and other costs not covered by life insurance
- 2. Replace income while taking time off work during recovery
- 3. Allow a spouse to take time off work to care for the life insured
- 4. Pay down mortgage(s)
- 5. Pay for a child’s post-secondary education
In other words, it transfers risk to an insurance company while providing flexibility and options to the life insured and his/her family. It will help the life insured focus on a quick recovery while removing any financial strain if the monies had not been made available.
Critical illness is a perfect vehicle to protect one’s finances should they survive a critical illness. Life Insurance companies have now expanded the definition of critical illness to include blindness, coma, kidney failure, multiple sclerosis, paralysis and etc. There is a high chance of a major illness occurring during one’s lifetime compared to dying (Source: Cancer Society 2021: 2 in 5 Canadians are expected to develop cancer during their lifetime. About 1 out of 4 Canadians are expected to die from cancer.) Survival rate for breast cancer (89%) and prostate cancer (90%) but others are lower such as colorectal cancer (67%) and lung (22%).
Do I really need critical illness coverage?
Here are some stats to consider if you are still undecided:
- If your employer is lenient and allows you to take a medical leave, how long will they pay 100% of your income until you no longer receive a paycheque? How will you deal with the loss of income? Disability insurance will kick in, right? No so fast, if you are deemed to still perform your tasks of your regular occupation, you will not qualify for benefits.
- 1. Wait times for cancer treatment over the last 5 years have exceeded 12 weeks (probably longer after March 2020 thanks to Covid-19)
- 2. Costs to receive out of town treatment have increased 50% since 2016
- 3. The average cost in the last 10 years for a single course of treatment for cancer drugs is north of $75K. This is a good starting point for how much coverage you should get.
What is the optimal solution for the 4 points outlined above, consider adding critical illness to your portfolio. Even if you do qualify for disability insurance, you have on average 119-day waiting period before benefits start. The lump sum tax-free benefit of critical illness will allow you to take an extended period of time off work as you prepare for recovery. In fact, the critical illness payout can help bridge the gap between your last paycheque and the first payments from disability insurance.
Cost of not having critical illness.
Critical illness is not common in employer sponsored benefits. A car accident or death can create a potential loss ranging from the thousands of dollars or even over a million dollars. Auto and life insurance are critical to protect one against such financial hardship.
A less severe case may result in a short period of income loss but a more serious illness, may require one to take time off work, renovate your home to accommodate your new condition, maybe even weekly visits form a healthcare professional. And we haven’t even factored in expensive drugs for treatment.
If you do not have critical illness you may have to withdraw from your savings, non-registered, TFSA, RRSP/RESP. This could seriously put a dent on your retirement plans. Would you look towards friends and family as a last resort? Will this put pressure on your family’s financial situation as well?
Things to consider once you are diagnosed with a critical illness.
- 1. Double check to make sure the policy was in effect when you suffered the critical illness
- 2. Completion of the survival period (30-90 days after the diagnosis)
- 3. Make sure a claim form is completed in full with signatures
- 4. Assessment (provide copies of all medical evidence regarding the diagnosis, including test and laboratory results, surgical and consultation records)
- 5. A cheque will be mailed to you if the claim is accepted (fastest is 10 days if all necessary documents were submitted and not contested by the insurance company)
A disability can have many outcomes from being minor to devastating. For example, nerve damage (hand slipping while cutting wood) may cause a surgeon to be unable do his/her job, resulting in a disability payout. But if the nerve damage wasn’t caused by one of the covered critical illness, critical illness will not pay a benefit. Hence, just because your employer’s group insurance has a small coverage on disability doesn’t necessarily mean you are covered for all types of situations.
Another thing to consider is that besides loss of income during prolonged illness, it may have a profound impact on your family in terms of emotional and physical toll. A lump sum tax-free benefit from critical illness can afford you and your spouse to take time off to completely recover both emotionally and physically. Convinced? Even if you decide to buy critical illness, remember that you have to qualify for it through underwriting (different from life insurance, as the decline rate is higher for critical illness insurance). If you’re healthy today, you may say to yourself I don’t need it. But, it is when you are healthy that is the best time to apply. Not only will you qualify, but the earlier you apply, the lower the premiums should be. Should you have any additional questions or would like more information on how it can help you and your family please feel free to reach out to me at admin@dlwealthmangement.ca or call me at 416 882-7462.