Bill’s Blog | January 26, 2023
As a Life Insurance Broker in BC, I can offer many solutions to clients. Many types of investment strategies and a wide range of unique insurance products. As an insurance advisor, I aim to help you understand risk and offset it with an affordable solution. In many cases, I start with life insurance and create the best solution for my client. It may be term insurance, permanent insurance to age 100, or a combination (hybrid solution). Why? Well, we all have a 100% risk of death. Second, most people do not want to leave a financial mess to loved ones after they die. Life insurance, in most cases, is a very affordable way to offset this guaranteed risk. Once we underwrite the insurance policy and it is in place, what should be the next priority with insurance?
I will often mention to clients their most important asset during their working years is their ability to make consistent income. Think about it; most Canadians will work between 40 and 60 years from their teens to adulthood. If you averaged $60,000 per year times 45 years, that would mean 2.7M of income. But what if you received a critical illness over that period, survived, but could not work for one, two or three years? What would this mean to you and your family? If you are seriously sick for more than 90 days, statistics say, you will not be able to return to work fully until 27 months.
When a health crisis hits, many people do not have sufficient savings. Their savings are quickly gone, and now they have to sell assets or cash out RRSPs. Often what took 10 to 20 years of saving to build up in an RRSP for retirement can dwindle in 2 to 3 years due to a health crisis.
So, what insurance could you purchase to offset this valid risk? Have you heard of Critical Illness Insurance? First, I will explain what CI insurance is and the different types of coverage available. Then, what is the difference between critical illness insurance and disability insurance? Then I will share the stats on Canadians’ most common critical illnesses. Next, I will share a real-life story and how CI insurance helped a family due to cancer. Finally, I will close with the action steps and the possible solution.
What is Critical Illness Insurance? CI insurance pays out a lump sum amount (say 75K or 100K, as examples) within 30 days of a verified medical diagnosis of a covered sickness as outlined in the policy. The benefit is TAX-FREE, as long as you have paid the premiums (not your company). Remember, cash is king in a crisis!
Firstly, let me explain the basic options of CI insurance. You can purchase two types: Simplified CI coverage, and these policies cover 4 or 5 of the most common conditions such as cancer, heart attack, major heart issues or stroke, but they are often limited in what they can offer or amounts of coverage. These policies will also be less expensive than the full CI coverage options. The comprehensive policies will often cover 24 to 26 critical illnesses and have more features and benefits for the client.
What is the difference between CI insurance and Disability insurance? As mentioned, CI pays out a one-time tax-free lump sum payment, and in many cases, the policy expires. However, some policies offer a second payment under certain conditions or a partial payment with a less severe critical illness. Disability insurance offers a monthly income replacement based on the policy requirements and a specified timeframe. Generally, you will receive approximately 67% of your current income after the qualifying period (could be instant, 30, 60 or 90 days, based on the client’s choice).
Stats on Critical illnesses in Canada: The statistics are pretty sobering regarding the number of Canadians who get a critical illness at some point in their lifetime. The number one critical illness is cancer. When I do my “Protect Your Income” seminar, I will ask the audience to confirm by hand, “how many of you know someone personally who has or had cancer?” I receive between 90% and 100% confirmation. So it is no surprise because 50% of men will receive cancer at some point in their life, and women are about 47%. Critical illness claims are about 70% cancer, 20% heart and stroke and 10% other serious illnesses.
A real-life story of how CI helped a family when cancer struck: Many years ago, after consulting with a client, the person felt it would be a great idea to have CI insurance after she understood the benefits. She had a higher income than her spouse, which would significantly impact the family if she could not work. I usually recommend having two years of income protection. In this case, we also added the “Return of Premium Rider,” which meant if she never claimed within the first 15 years of the policy or after that, she could request 100% of her premiums back. CI is the only insurance I am aware of where you can receive 100% of your money back if you never make a claim!
Six or seven years passed, and I received a call from the client, saying she was considering stopping the CI policy. So my first questions were, are you unable to pay the premium or has something significant changed? In both cases, she said no. Then I reminded her if she experienced a CI event, she would receive the 100K tax-free or get 100% of her money back after 15 years upon request. She decided to keep the policy, and thankfully she did.
A few more years passed, and I received a call informing me she had been diagnosed with severe cancer. Thirty days later (approx.), she had 100K in their bank account, which was a huge blessing, and she and her family could focus on her recovery.
Action Steps and Solutions:
- Just for the record, both my wife and I have CI coverage. Of course, no one ever expects to receive a critical illness, but sadly it happens all the time.
- Access your financial situation. Do you have at least two years’ income saved to help you through a severe prolonged health crisis?
- If the answer is no, please contact your insurance broker, look at your options, and get a couple of quotes. If you do not have an insurance broker, please reach out to me, and I can assist you in finding the best solution.
- As with all insurances, apply when you are healthy and have no surgeries scheduled or unresolved tests. Second, the younger you are, the lower the premium costs.
- Best to purchase CI during your working years when you have significant risk to your income or savings. Very few Canadians have adequate savings.
- Ideal clients for CI insurance:
- A parent who wants peace of mind regarding their children, as severe illness can be very disruptive to a family and expensive.
- You do not have sufficient savings, and you know a critical illness would seriously disrupt your financial future.
- Business owners and Execs who want to protect their business, and I can develop an excellent strategy using CI to protect what you have worked so hard to build.
All the best in 2023,
Bill Westmacott, Insurance Broker & Financial Educator