May 13, 2007


You can fool yourself
You can cheat until you're blind
It can happen to you
It can happen to me
--- Yes, It Can Happen
89% of Canadians have a family member or close friend who has suffered from a critical illness. Yet only 51% have a financial plan in place (Ipsos-Reid, June 2005).

What is a Critical Illness?
A critical illness or condition includes Alzheimer’s disease, aortic surgery, benign brain tumour, blindness, cancer, coma, coronary artery bypass surgery, cystic fibrosis, deafness, dismemberment, heart attack, heart valve replacement, kidney failure, loss of independent existence, major burns, major organ transplant, motor neuron disease (Lou Gherig’s disease), multiple sclerosis, muteness (loss of speech), occupational HIV, paralysis, Parkinson’s disease or stroke.

The "Big Three" are cancer, heart attack and stroke.

No matter how well we take care of ourselves, we could be affected. Marketing material invariably shows the scary statistics.

The Financial Risks
Thanks to medical advances, we are more likely to survive a critical condition. What about our finances? There are many costs that government or other health plans exclude. Here are examples:
  • faster or better treatment at a foreign hospital
  • cost of experimental drugs
  • home renovations or new vehicle (e.g., to accommodate a wheelchair)
  • travel and accommodation costs of family members especially if you travel to another city or country for treatment
  • cost of a family vacation or some other dream
  • offset income lost by you or family members during your treatment or recovery
If your condition arose from work pressures, you may want to take a less stressful --- lower paying --- job upon recovery.

The Financial Planning
So how do we plan to deal with the costs?
Canadian financial planning for critical illness
  • Use savings (54%)
  • Mortgage or sell their house (17%)
  • Get help from children (5%)
  • Get help from other family members (2%)
  • Sell other items (1%)
source: Ipsos-Reid, June 2005
Using savings or home equity (71%) creates another problem: less money for retirement. Getting help from family hurts their future finances too.

What is Critical Illness Insurance?
As you might expect, insurance is available to offset the financial risks of a critical illness or condition. A lump sum (e.g., $50,000 to $2 million) is payable 30 days after diagnosis. This money can be used any way you want.

Coverage is available to age 75 or even 100. Premiums can increase every 10 years or stay level. If you're fortunate to not suffer a critical illness, you can get a return of most or all of your premium, which you can then use for retirement income. The specifics vary among products.

Critical illness insurance has only been available in Canada since 1996 and the taxation is unclear. Since you buy coverage with after-tax dollars, the basic benefit is likely tax-free (as with disability income insurance). Is the return of premium option tax-free? This isn't certain.

Since term life insurance is considered a commodity, you can generally pick the lowest price from a major company. Critical illness insurance is different.
  • definitions vary among companies and the medical language makes comparisons difficult
  • the conditions covered vary --- some products insure over 20 conditions
  • very few advisors are knowledgeable about the products
How would you feel if your heart attack meets the definition of Product B but you bought Product A and get nothing? One strategy is to buy coverage from two companies to increase the chances that one will pay.

What if you suffer a critical illness but don't have insurance because your advisor didn't tell you about it? You can start suing. Or be proactive, get educated and take action now.

Picking the right product is not easy. And too few Canadians buy coverage which could benefit them.

Other Resources
By coincidence, today's Toronto Star has an article about insurance policies that benefit the living. Naturally, you can find more information online (or ask here). For example, is more educational than most.


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