Be Prepared for the Unexpected

Can you imagine receiving the worst news of your life, the doctor giving you the stark diagnosis that you have cancer? Then imagine receiving the best news in your darkest moment.  A cheque arrives in the mail to ease your worst financial burden.

The need for Critical Illness Insurance was initiated by a South African cardiac surgeon.  This fact may surprise you.  Dr. Marius Barnard, one of the top 25 most influential people in the field of health insurance and protection, identified a need for this type of insurance to financially help patients while they recovered from a critical illness.

Critical Illness Insurance pays a lump sum cash benefit to a person diagnosed with a life-threatening illness.  Typically the four dreaded conditions are: heart attack, cancer, stroke and coronary artery surgery.  Over the years, the insurance coverage has evolved to include other diseases. Now most policies cover between 12 and 26 conditions.  The best part is this tax-free cash benefit can be used for any purpose.  

Marius Barnard didn’t have any previous knowledge of insurance. He simply cared about his patients’ health so much so that he became an advocate and convinced insurance companies to develop an insurance product that put much-needed cash in a patient’s hands.  The focus could then turn to their recovery and away from their financial needs. His argument was that as a medical doctor, he could repair a patient’s physical body, but only insurers could repair a patient’s finances.  As we know, financial stress is detrimental to any person’s health and even more so when they are recovering.

Thanks to Dr. Barnard’s efforts, the first Critical Illness (C.I.) insurance policy was launched in South Africa on August 6th, 1983, and eventually spread to other parts of the world as the need for Critical Illness insurance grew. 

Don’t discount the need for this type of insurance.  When you need the coverage the most, you will be grateful you have it.  No one knows what health challenges they will face. 

I convinced my son (now 34 years old), a father of two, to have some Critical Illness coverage. The expectation wasn’t to insure for the maximum amount.  I knew that if he incurred an unexpected illness, like cancer, a heart attack or stroke, he and his family needed this type of protection in addition to life and disability insurance.   

The realization is that an illness comes with unexpected expenses: medication, travel costs, and loss of wages while you wait for the disability benefits to start.  Where will the money come from if your savings are limited?   You can choose the amount you feel would adequately fill the need:  $25,000, $50,000, $75,000 or higher.  Having this extra cash will ensure you don’t exhaust your savings (or worse, withdraw RRSPs which will create taxable income and deplete your future retirement fund).

With the different kinds of insurance, it’s a matter of determining the right coverage and linking the premiums to your budget. My two latest blogs talk about the need for life and disability insurance.  Now the attention is critical illness insurance.  In the diagram below, Sun Life Financial depicts the need for health coverage for every stage of your life. In the working years, you protect your income while in the retirement years you protect the savings built from the years of hard work.  

Making the Premium Affordable

To blend your insurance needs with an affordable premium, you may consider increasing the elimination period on your disability insurance in order to lower the premiums and free up cash to fund a critical illness policy.  While you wait for your disability benefits to start in 90 days, the good news is the wait time for Critical Illness insurance is 30 days. With any unexpected event or emergency, a prudent strategy is to have sufficient savings to fund a minimum three months of expenses.    

To illustrate, the cost of including three blankets of protection for a 29 year old non-smoking male construction worker would be a monthly premium of $168.33 for the following coverage:

$500,000 Life insurance

$125,000 Critical Illness Insurance

$  2,500 Monthly Disability Benefit (with 90 days waiting period)

If the same individual wanted only Critical Illness insurance for $50,000, the monthly premium would be $35.96. 

These illustrations are a starting point to show that if the costs are high then you tweak the coverage to fit your budget.  You may lower either the amount of life, disability or critical illness insurance.  The consequence of having coverage too low is that any shortfall would be funded from other resources.  

Tailoring insurance coverage to your personal needs should be discussed with an insurance representative.  Since I am a CERTIFIED FINANCIAL PLANNER® and not an insurance representative, you should not feel like you are being sold an insurance product.  But I want you to consider what you are being told for your own protection. Manulife Synergy Insurance Package offers blended coverage: one premium equals the coverage of the three different insurance types.  You will not have to determine your greatest risk: death, disability or illness. You will be covered for all three.  If you’re familiar with Dairy Queen’s full meal deal, this is similar, except you are ordering insurance products, not food to fill the need.

The Balance Between Cost and Need

If Marius Barnard can recognize a need for insurance to help patient’s recover from a critical illness, can you recognize the need too? 

If Marius Barnard considered that physical and financial health are connected to the recovery of an illness or disease, would you consider the consequences too?  

One last question: Do you have the means to manage the unexpected costs associated with your recovery?   If the answer is “No,” this calls for action. 

Determine where in your spending plan you can make room for insurance premiums.  What’s one less thing you can eliminate so you can buy the one thing you need most, peace of mind knowing you are prepared for the unexpected?