Insurance for You...Hmmm.....

Life insurance is pretty straight forward.

In order for your beneficiaries (or estate) to receive your insurance proceeds you have to die. Forgive me for being the bearer of bad news on this one, but we all go sometime. Having life insurance assists in replacing your income earning power for your loved ones when you are gone or preserves the value of your estate from your pending tax liability or both. In essence, this type of insurance is purchased with others in mind.

That’s all fine for them, but what about you? What happens if you are stricken by a critical illness and you actually continue living? Advances in medicine have either found a way to cure or contain many of the illnesses that used to end our lives. Studies show that we have a much greater chance of suffering from a critical illness before age 75 than dying from it. In fact, the likelihood of surviving a critical illness before 65 is two times greater than dying from it. This is on top of the fact that we are simply living longer in general. Bottom line, our families need money, which is hard to make if we’re sick or dead.

Don’t despair! There is a type of insurance for those who believe that they would benefit from a lump sum payment if they were to be stricken with a critical illness or life-altering disease. It’s called Critical Illness Insurance. In order to receive this payment, you would need to satisfy the 30-day survival period after being diagnosed. If, god forbid, you pass away in that time frame, the premiums paid to date are then returned to your beneficiary and your life insurance (if you have any) will take effect and be paid out.

What kind of illnesses qualify for this insurance benefit? Most insurance companies cover the major ones such as cancer, heart attack and stroke. There are some life altering illnesses that are also covered, such as multiple sclerosis, paralysis, Parkinson’s Disease and blindness. The complete list is too long to write about here, but these are the most commonly claimed.

There are several ways you can purchase this insurance. However, the most popular plans are renewable term and level premiums to age 75. Renewable Critical Illness Insurance is an affordable way to provide coverage for a temporary need, such as paying off a mortgage or loan. Level premiums to age 75 offers a more permanent coverage as level premiums are fixed throughout the life of the contract. You can also include a return of premium feature which means you have all your premiums returned should there be no claims made. Getting your money back on the premiums you have paid on this type of insurance is of course an interesting feature.

We all know someone who is currently experiencing or has had an illness of this nature. Do we really know what kind of emotional or financial toll it takes on them or their family members? A colleague of mine in his early 50’s was diagnosed with Stage Two prostate cancer. While the diagnosis was very serious, with a potential to develop into a more progressive state, it was still at a very treatable stage with a high success rate. Even so, he told me there were many times he stared out the window wondering if he was going to live. Fortunately he had $100,000 of Critical Illness Insurance and in less than three weeks of his diagnosis (and after his 30 day waiting period) he received his benefit payment. Even though he was in good financial health, he found the money to be of comfort during those emotionally difficult times. In the end, he was treated through surgery with complete success. And what did he do with his money? Since there were no restrictions on the use of his benefits, he applied them to defray the cost of one of his children’s education in Europe. He was fortunate. Many others with more severe illnesses use the money for out of country treatment, alternative treatments, home or vehicle alterations, debt repayment or even to take a long put-off family vacation. Thankfully this story had a happy ending. On the flip side….On August 13, 2001, a business acquaintance of mine sent me an emailthat went exactly like this…

Dear Greg,

Do forgive me for writing instead of calling this morning, but I cannot bear to call, it is just too difficult.

I was admitted to the ER last week in terrible pain, and after a number of preliminary tests, have been told I have cancer. It is in a number of parts of my body, thus not an early stage disease.

The next week to 10 days will hopefully bring a detailed and specific diagnosis, and a treatment plan. Until then, I am in and out of hospital for tests and consultations, and unable to work.

Which brings me to the next point: Once I have a diagnosis and treatment plan, I will want to discuss options with you regarding my work for you. It is premature for us to discuss that now, as I have very little information with which to work. I cannot tell you how much I value both the work I do with you and our professional relationship. My health, indeed my very survival, comes first.

As soon as I have any significant information to share I will do as soon as I can.

Thank you for your understanding.

Nellie (real name withheld)

I know how I felt reading the email. I can only imagine what Nellie must have been going through writing it.

To make a fairly long story short, we reconnected in the fall when her cancer was in remission and had lunch. We talked at length about what she was going through and about our resuming our business relationship. Up until this point she was focused on getting better and thinking about going back to work was the farthest thing from her mind. Rightly so. However as a business owner, without her working, no income was being generated. She was living off and possibly depleting her investments. Being the curious financial advisor that I am, I did ask if she had ever heard about Critical Illness Insurance. “Funny you ask,” she said, “because my advisor mentioned it to me during our annual review earlier in the year and even left behind a brochure for me to read. I just threw it on the dining room table and paid no attention to it. I just thought that stuff happens to other people.” A very common response to insurance in general, I replied.

We resumed our business relationship again up until the end of February of the next year. This was followed by an unusual several week gap in our contact. I soon learned why. On March 26, 2002, I received an email; she had passed way…seven months after her initial diagnosis. We had lost one of the good ones.

Back to the point of the article. I will never know if receiving a lump sum of money would have saved this wonderful woman or even bought her more time. I do know that without it, we will never know. It did, however, give my colleague some additional emotional comfort even though he was in relatively good financial shape.

As to the thought it will never happen to me, read this startling statistic. In the 1970s, one in five people had a lifetime probability of developing cancer. Today, 1 in 2.3 Canadian men and 1 in 2.6 Canadian women are expected to develop cancer over their lifetime.* Yes, you read that right. That other person it always happens to might someday be you.

It’s no coincidence sales of Critical Illness Insurance have increased dramatically. Corporate benefit plans are even beginning to carry them. The downside to its popularity is that insurance companies might begin to rethink the diseases they cover (reduce them) and the premiums they charge (increase them).

So if I were you, I’d take a good hard look at integrating a Critical Illness policy into your overall financial plan unless you already have one. Your respective advisor will no doubt be able to assist you with understanding the options, costs and ultimately the appropriate fit for you.

Your quality of life may depend on it