YOU BUY LIFE INSURANCE WITH YOUR HEALTH

Disaster-proofing your life is the foundation of financial success, according to Preet Banerjee (and me). That means protecting your biggest asset: your future income. You need insurance for disability and death. Getting coverage takes more than money.

You buy insurance for the four financial risks with your good health. If you're in poor condition or have harmful habits like smoking, you pay higher premiums. No law forces an insurer to cover you. In extreme cases, you can't get coverage at all. That’s when you most need protection.
How do you get the health insurance or life insurance which you and your family need? Here are three strategies that work alone and together.

1. Buy young
2. Buy more now
3. Stay healthy

Buy Young

You tend to be healthier when you're younger. That means it's easier to qualify for insurance. You also pay lower premiums since you’re less likely to make a claim. The price always go up because you're getting older, even if you get healthier.

Younger people tend to ignore the savings available to them. Perhaps they have less money, a smaller perceived need for insurance and other priorities.

Buy More Now

You can always reduce your coverage but can't always add more later. You face new underwriting each time. The testing is becoming more sophisticated too. Future prices are always higher because you're older.

If you buy more coverage now, you have better protection and reduce the need to add more insurance later. Even if you have lots of money, you're limited in how much protection you can buy. To be prudent, insurers limit the amount of coverage for which you qualify.

Exception: you might be able to add a “guaranteed issue” option to buy more insurance later with no questions asked about your health. This flexibility is especially helpful with disability insurance since you’ll likely want more coverage as your income increases. (You can also add options to offset the effects of inflation.)

Stay Healthy

Since we can't predict the future accurately, we can't anticipate all our changing future insurance needs. If you're healthy, you can apply for more coverage later. You also enjoy a better life.

Maybe you're in the midst of improving your health (e.g., by stopping smoking). Don't wait to buy insurance. You can apply for lower premiums later. In the meantime, you're protected.

Health is wealth. Health is the price you pay to qualify for insurance.

Links

• Disaster-proof your life: the first rule for financial success
• What happens during a paramedical exam for insurance?
• How to afford the insurance you need
• What do you learn from getting sick?
• The four financial risks
• image courtesy of Elnur

PS Get help with your insurance at Taxevity.

INSURANCE LESSONS FROM BREAKING BAD

Diagnosed with cancer and given only two years to live, high school chemistry teacher Walter White attempts to secure his family's financial future by teaming with his former student, Jesse Pinkman, to produce and distribute crystal meth.  — Netflix summary for Season 1

Would Walter have turned to crime if he had the right insurance in place?

Bad Breaks

Good  people get bad breaks. Walter never smoked but he got lung cancer anyway. By the time of detection, the cancer was considered untreatable. Were there no signs earlier?

Usually symptoms of lung cancer do not appear until the disease is already in an advanced, non-curable stage. — cancer.org

Most lung cancers are first diagnosed based on symptoms. Symptoms of lung cancer are not very specific and generally reflect damage to the lungs’ ability to function normally. The most common symptoms are a worsening cough that will not go away, and chest discomfort. Other symptoms include shortness of breath, spitting up small amounts of blood, unexplained weight loss, back pain, loss of appetite, and a general fatigue. — lungcancer.org

Walter shows many of the symptoms. There are precautions to offset the financial costs of disease.

Health Insurance

"All the incentives are toward less medical care, because the less care they give them, the more money they make." — John Ehrlichman on HMOs

Walter was covered by an HMO (Health Maintenance Organization). That's a US-style of cost containment with unfortunate side effects. The premise is good: treating conditions early is simpler, faster and cheaper than waiting until later. The HMO get fixed revenue per subscriber, which provides an incentive to tame costs. Members have financial incentives to stay healthy too. Their out-of-pocket expenses (if any) are lower for basic preventative care than for specialized care.

The HMO (which could be run for-profit) makes more by providing less. That's not the same as keeping people healthy. For instance, having too few doctors means a greater workload and an incentive to spend less time with each patient.

Walter experiences the drawbacks. His pricey chemotherapy isn't covered. In Season 2, a $13,000 hospital stay isn’t either. There’s a difference between an MRI which is diagnostic vs exploratory --- even when ordered by a doctor. Walter got the one that was excluded. Does that seem fair?

Another cost is waiting time. Perhaps the best doctors don’t want to work in an HMO where they’re often on salary.
Doesn't the Canadian healthcare system feel similar? We also have waiting times, limited choice and limited coverage.

A friend who is currently undergoing cancer treatment is getting injections which cost $3,000 each. Private health insurance covers 75%, which means an out-of-pocket expense of $750 each time.

Disability Insurance

Income replacement insurance helps replace your income if you're unable to work after a waiting period. The definitions and benefits vary. You might not be able to work during treatment or be able to return to work afterwards. The bills keep coming in even if the income doesn’t.

Employers might provide income during short absences. Perhaps full pay for X days and then a reduction until the long term disability benefits start. The self-employed may not even have that cushion.

Critical Illness Insurance

This coverage typically pays a lump sum a month after the diagnosis of a covered life threatening condition like cancer, heart attack or a stroke. The money can be used any way you want.

Walter could have used the benefits to replace income until the disability insurance benefits start, pay off debt and/or get the hot water heater fixed. A hot bath can be therapeutic.

Life Insurance

"… good state college … adjusting for inflation, say $45,000 a year, two kids, four years of college...$360,000. Remaining mortgage on the home, $107,000. Home equity line, $30,000, that's $137,000. Cost of living, food, clothing, utilities, say two grand a month? I mean, that should put a dent in it, anyway. 24K a year provides for, say, ten years. That's $240,000, plus 360 plus 137...737. $737,000, that's what I need." — Walter (Episode 201)

Walter wanted to leave his family enough to

• payoff debt: mortgage and line of credit
• fund university: for two children (one age 15 with cerebral palsy and a baby to be born)
• cover living expenses: for 10 years

Do you see the flaws in the planning?

There's no provision for unexpected expenses. There’s a bigger problem. What happens after 10 years? Walter’s wife Skyler is then 50. Is she to go to work then? She isn’t trained in Walt’s lucrative side business. Maybe Walter expects Skyler to find other sources of income such as from her writing or selling items on eBay.

What To Do?

Walter has been seriously underemployed. While teaching, he worked part time at a car wash. Also, teachers get two months of summer vacation. Given his intelligence and resourcefulness, what was holding him back? More money would have provided a better standard of living and covered the insurance premiums. His impending death brought him to life but that was too late.

Insurance looks like an expense but provides peace of mind. Insurance could be the best investment ever when purchased through the right advisor and insurers. The underwriting process may have detected the cancer early enough for treatment. That would have been a good break (though boring TV).

Links

• Life-changing events no longer trigger insurance purchases
• Income replacement insurance: a guide to disability insurance
• Two types of insurance you may have but cannot own
• Oblivion: what happens if my life insurance company dies?
• Case study: what to do when your term 10 rates are about to spike?
• Critical illness insurance (Riscario wiki)
• The best and worst times to cancel your life insurance
• Test your life insurance literacy
• Tips for first time life insurance buyers
• how to fund the insurance you need

Podcast 245

direct download | Internet Archive page | iTunes

PS If you rent your hot water heater, you avoid a capital outlay and have your repairs covered. That’s insurance too.

THE BEST AND WORST TIMES TO CANCEL YOUR LIFE INSURANCE

Peter Drucker once said, “Doing the right thing is more important than doing the thing right.”

There’s also value in doing the right thing the right way at the right time. You can cancel your insurance anytime you want. That power comes with risks.

The Best Time

The best time to cancel insurance is before you buy. This is the phase where an advisor makes proposals. You don't have much obligation, especially if you didn't ask for the work to be done.

If you have no intention of buying, perhaps you’re wasting your time or the advisors? If start the process, you may make an unintended purchase. In a chain, one link leads to the next and eventually to your wallet.

The Slippery Slope

You may not qualify for insurance, which means you can’t buy any of the nifty proposals. That’s true. Since the approval process takes weeks or months, your advisor may encourage you to submit a trial application without delay. The proposals can be prepared and changed while awaiting the decision.

Since there’s no cost or obligation to you, why not get “pre-approved”? In reality, you’re likely submitting a normal insurance application.

Once you’re approved, you’re congratulated and a big step closer to buying. You don't want to lose something once you've already got it, especially after the underwriting process. Maybe you had to undergo a paramedical exam. All that for nothing?

Approved

If you’re approved, you need not take delivery of the insurance contract by paying the first premium and confirming that your health hasn’t changed.

If you cancel now, hundreds or thousands of dollars have been wasted by the insurer for the underwriting. These “returns” increase the cost, which get passed on  to other buyers via higher premiums or lower benefits.

If you have no real intention of buying there's not much point going through the underwriting process.

Money-back Guarantee

You can also cancel after taking delivery during the money-back guarantee period (you’re exercising your right of rescission). You typically have 10 days. This gives you time to read the policy contract in detail to make sure that you're getting what you thought.

An insurance contract is a complex legal document that’s not easy to understand. Would  you really read it? If you want to look at the contract, can get a specimen in advance. There's no harm in looking at one and asking your advisor to explain the pertinent elements.

The Worst Time

The worst time to cancel is after you've purchased and had the insurance for a while. Why are you cancelling now?

Is the reason affordability? Perhaps you were sold the wrong product in the first place or the wrong amount of the right product. Maybe you can make adjustments.

Maybe you think you no longer need the insurance. Do you feel that way because you don't think you'll have a claim? If you could predict accurately, no insurer would sell to you since the odds would be against them.

Are you canceling because you've been shown something newer and shinier? It's important to do a proper comparison. You may be giving up more than you think. With a new policy, you face new conditions, new underwriting and possibly worse guarantees.

If you cancel, you’re giving up an asset of increasing value: you're more likely to face the claim as you get older. There maybe other things you can do with your policy. Perhaps you look at it as an investment now --- especially if you are able to keep the coverage for life.

Cancelling insurance is easy. Replacing coverage may not even be possible.

Links

• Test your life insurance literacy
• How to afford the insurance you need
• Reinstatement: trying to get your insurance back
• Does your insurer win when you cancel?
• After-sales service and life insurance
• Beware of ‘exclusive’ financial strategies
• image courtesy of Tferr

Podcast 205

direct download | Internet Archive page | iTunes

PS Make sure your insurance doesn’t get cancelled unintentionally because you missed premium payments.

INCOME REPLACEMENT: A GUIDE TO DISABILITY INSURANCE

In this week’s Globe and Mail, Preet Banerjee investigates the financial aid available to the disabled. I’m quoted. The interview took place via Bluetooth while I was driving to the sold-out Toastmasters conference. (There, Jonathan Holowka and I showed ways to turbocharge clubs with social media.)

Disability is a dreary subject and you avoid buying insurance, but the topic is popular this week. Advisor.ca, has articles to help salespeople clear the sales hurdle and pitch disability coverage. There is even a script for them to use on you. If you start getting contacted in the near future, maybe that’s why.

This post gives you more insider thoughts about disability insurance, which is sometimes given the glitzier name of income replacement insurance.

Statistics

There are many eye-popping statistics about the high risk of disability and how long income can be lost. You can watch a no-longer-embeddable video from PPI Solutions.

You probably know people who are disabled at least partially.

Differences

Death is something an actuary can calculate fairly easily and accurately. Predicting who will become disabled is not so easy. It is a calculation based on chance.
— New York Times, April 2011

Life insurance pays a fixed amount upon death. Critical illness insurance pays a fixed amount upon diagnosis of a covered illness. Within reason, you decide how much coverage you want.

Disability insurance is different. It only replaces a portion of your lost income. If you were able to replace your full income and get indexed benefits, where is the financial incentive to return to work? If the economy is bad and layoffs are pending, getting disabled may look like an exit strategy.

To counter abuse, insurers have ongoing checks to make sure you still qualify. With life and critical illness insurance, you're only checked at the time of the claim.

Disability has subjective elements. Insurers have leeway in deciding who qualifies for benefits. There are three key ways to getting your claim paid.

Nortel

You can't rely on disability protection from your employer even if you pay the premiums. We already looked at the two types of coverage you may have but can't own.

Nortel is a sad example. Instead of getting real insurance, the company decided to insure employees themselves. Since Nortel is bankrupt, their promises mean nothing. The disabled lost their benefits. If real insurance were used, then benefits would have continued. If the insurer failed, Assuris protection would step in.

In British Columbia, the government is not paying legislated benefits to thousands of disabled people.

If you can't rely on an employer or government, can you rely on yourself? If you don't have your own DI coverage, you are your own insurer. Since you cannot tell if you're going to become disabled or for how long, self-insuring can prove very costly unless you're independently wealthy.

Problem

Statistics Canada reports that 1 in 7 Canadians are disabled. The rates increase with age. Not only is disability common during your working years, the benefits could be paid until age 65 and might even be indexed. While the protection is worthwhile, it's pricey. It has to be. That’s why some people buy critical illness insurance instead. That's valuable coverage but hardly a substitute.

The perceived problem is that you can spend lots of hard-earned money on insurance and never get a long term disability. Isn't that better than having a claim? You had peace of mind and your health.

Links

Disability

• Risk calculator (Manulife) (new)
• video: The importance of disability insurance (Preet Banerjee, Oct 2013) (new)
• Disability insurance: preparing for the worst (MoneySense, Jan 2012) (new)
• Financial aid is available for the disabled (Globe and Mail, Nov 23, 2011)
• Preet Banerjee: articles in The Globe and Mail and blog posts at Where Does All My Money Go?
• Disability insurance wiki (riscario.com)
• What you need to know about life and disability insurance (NY Times, April 2009)
• The six financial fears of Canadians and the four financial risks
• Thousands of disabled denied legislated benefit (Globe and Mail, Jul 5, 2011)
• Two types of insurance you may have but can’t own
• Oblivion: What happens if your insurance company dies?
• A week in a handicapped hotel suite

Salespeople

• Disability Insurance Discussion Checklist (advisor.ca, Nov 23, 2011)
• Pitching disability coverage (advisor.ca, Nov 21, 2011)
• Clearing the DI sales hurdle (advisor.ca, Nov 23, 2011)

Nortel

• Disabled Nortel workers suffer again (Toronto Star, May 2011)
• Nortel disability advocate Peter Burns dies at 54 (CBC News, May 2011)
• Self-insured company disability plans (Canadian Personal Finance Blog, May 2010)
• image courtesy of Julya Katkova (Russia)

Podcast 145 (hmm)

direct download | Internet Archive page | iTunes

PS Relying on your employer for your pension is also risky. Defined benefit plans are becoming rare in the private sector and we're living longer than ever.

DEALING WITH THE STAGGERING COST OF DEMENTIA

[Selected by Rob Carrick for his Personal Finance Reader in The Globe and Mail]

The Actuary magazine (yes there is one and it's pretty good) has a scary article about the dementia epidemic (PDF) by Karen Henderson of the Long Term Care Planning Network.

The most common form of dementia is Alzheimer’s Disease. It's tough enough to say ("Alltimers" or "ol' timers") and spell. Symptoms of this fatal brain disease affect include loss of memory, delusions, paranoia and aggressiveness. Patients may need help with everyday activities like bathing, eating, dressing and toileting.

Imagine the toll on families and caregivers.

I have no personal experience but know several people whose parents are affected. There's a Hollywood interpretation in The Notebook (IMDB link).

The Disease

Dementia affects all ages and cultures. Alzheimer's Disease primarily affects women and the incidence rates double every five years after age 65. However, you can get it if you're younger or a male. The disease is progressive and fatal. There is currently no cure.

The Prevalence

In Canada, 0.5 million have dementia. What about the US? The usual rule of thumb — Canada x 10 — projects 5 million. The latest estimate is 5.3 million. That's enough to fill cities. Worldwide, 35.6 million are afflicted. That's enough to fill countries.

The Cost

The cost of dementia is estimated at $604 billion ($US) — 1.3% of North America's GDP or about 1.5 times Wal-Mart's annual revenue. Big, big, big numbers. As an economy, dementia ranks as the world’s 18th largest. That’s about the size of Turkey and larger than the economies of Belgium and Sweden. In North America, we have the world’s highest costs at $48.6K per patient per year ($8.4K for medical care, $22.2K for nonmedical care and $18.0K for informal unpaid care). Here 71% of caregivers are females and 52% are spouses. In the urban US, 70-79% of patients live at home.

Even if the figures are overstated, dementia is a big problem and big business.

Giving Care

If you're caring for a family member (especially your spouse), can you concentrate at work? Can you even work? Do you neglect other family members? Tough questions.

About 40% of family caregivers show signs of depression, rage and trouble coping. The patient may no longer be able to live at home as the condition deteriorates or exceeds the abilities of the caregivers.

What you can do? You can hope for the best but prepare for the worst.

Insurance

Critical illness insurance may provide coverage for Alzheimer’s and other dreadful diseases. Some designs return your premiums if you don't make a claim. Your car insurance and home insurance don't. Yet critical illness insurance remains unsuccessful.

Long Term Care insurance makes payments when activities of daily living can no longer be performed.
Before you buy, consider the three keys to getting your claim paid. Plans differ. You don't want to delude yourself into thinking you’re better protected than you are. If your advisor only sells products from one company, be especially cautious. If you already have coverage, how good is it compared with the latest plans? Is the amount of coverage  still adequate? It's a good idea to get a review to make sure you're properly protected.

As with other forms of life and health insurance, the longer you wait

• the higher the premiums (read about the major recent hikes for life insurance)
• the more likely that insurers won't insure you (insurance is a business and insurers aren't obligated to take on risks they don't want)
• newer plans may offer less protection or be unavailable (Last month, MetLife stopped selling Long Term Care insurance in the US)

Dementia is hardly the only disease that can knock us down. At least there are ways to offset the financial costs.

Links

• The Actuary magazine: website and dementia issue (Dec 2010/Jan 2011)
• World Alzheimer Report 2010: executive summary (PDF, 12 pages) and full (PDF, 56 pages)
• Critical Illness insurance: The basics
• Do you care about Long Term Care insurance? (new)
• MetLife to stop selling Long Term Care insurance (Klipinger, Nov 2010)
• Long Term Care Planning Network (LTCplanningnetwork.com)
• Long Term Care News and Views (LTCnewsandviews.com)
• Eight movies about Alzheimer's Disease you shouldn't miss (about.com)
• Three keys to getting your insurance claim paid
• image courtesy of The Society of Actuaries

Podcast Episode 96 (5:28)

direct download | Internet Archive page

PS The post is meant to inform, not alarm.

The Weirdest Valentine's Day

The Eskimos had fifty-two names for snow because it was important to them: there ought to be as many for love. --- Margaret Atwood

What happens when Valentine's Day follows Friday the 13th? 

For some, loss of love, the 4th basic fear identified by Napoleon Hill over 70 years ago. Others say that February 14 eliminated that fear. 

In some workshops you're asked to bond by revealing something no one else knows about you. Would you believe a mild-mannered actuary went to a heavy metal and hard rock concert for Valentine's Day?

Stone Deaf

Back in 1988, my Valentine was far away in Thunder Bay. So I spent the evening with Motorhead and Alice Cooper at the Ottawa Civic Centre, a pairing better suited to Halloween. 

Motorhead was so loud that I could barely tell what Lemmy was singing. In an ode to where they were, they changed the chorus of Stone Deaf in the USA to Stone Deaf in Ontario. After they finished, we were. Truth in advertising. They could have also changed the title to Tone Deaf in Ontario.

Alice Cooper

Headliner Alice Cooper played enough classics to please the crowd. To my disappointment, he skipped my two favourite albums from the days before iPods and CDs, From The Inside (perspectives from a lunatic asylum, like One Flew Over The Cuckoo's Nest) and Flush The Fashion (an atypical, catchy collection).

Today

Twenty-one years later we're together ... visiting Pittsburgh. Which one's weirder? 

Happy Valentine's Day. 

Links

• Alice Cooper's song list (Alice Cooper eChive)
• Loss of Love: The 4th Basic Fear

The Four Steps In Wealth Management

The way to wealth depends in just two words, industry and frugality. – Benjamin Franklin

There are four steps in wealth management

1. Create wealth
2. Grow wealth
3. Preserve wealth
4. Transfer wealth

Simple to say but hard to do. Reducing taxes and reducing risk helps in each step.

Create Wealth

Ability is a poor man's wealth. — John Wooden

To create wealth, you develop, apply and improve your unique skills by getting through what Seth Godin calls the dip. Easier to say but certainly doable. And well-worth doing.

What if your opportunity to create wealth gets stolen by

• premature death
• disability
• a critical illness like a heart attack, cancer or stroke

Insurance maximizes your potential wealth in several ways.

Life insurance immunizes your heirs from your premature death by providing cash to repay debt such as a mortgage, cover living expenses for your family. Your business partners can use insurance on you to buy your shares so your heirs get cash and the partners get ownership of the company.

Disability insurance replaces income lost through disability. Some universal life (UL) insurance policies have a disability benefit which can pay out the cash value of your policy tax-free. You can also use the savings in permanent insurance as collateral for tax-free loans.

You can offset the financial losses from a severe illness with a critical illness insurance (see The Basics). This can take the form of a separate policy or an add-on your universal life.

Grow Wealth

The way to become rich is to put all your eggs in one basket and then watch that basket. – Andrew Carnegie

You invest your wealth to multiply your wealth. Compound returns do wonders, especially when tax-sheltered, yet most investors have

• nonregistered investments with taxable growth
• registered investments with temporary tax deferral until accessed
  

To improve results, you can reallocate a portion of your nonregistered investments into universal life. Why? For permanent or temporary tax deferral. Investment growth is tax sheltered as with an RRSP or the Tax-Free Savings Account (TFSA). But you're not limited by government-mandated maximum contributions, which are inadequate for the wealthy.

Preserve Wealth

It requires a great deal of boldness and a great deal of caution to make a great fortune, and when you have it, it requires ten times as much skill to keep it. – Ralph Waldo Emerson

To preserve your wealth, you want protection from taxes and creditors. With universal life insurance, your investment growth is tax-sheltered until withdrawn. You get permanent deferral if the growth is paid out as part of the tax-free death benefit.

You can get protection against your creditors by proper structuring (see the companion Riscario wiki).

Transfer Wealth

Never forget: the secret of creating riches for oneself is to create them for others. – Sir John Templeton

You can't take your wealth with you when you die. When you transfer your legacy, why not bypass taxes, creditors and public scrutiny. Your life insurance death benefit goes directly to your beneficiaries without passing through your estate or Will. This means

• escape from the probate fees on your estate
• protection from the claims of creditors, if properly structured
• privacy, since your Will becomes a public document

The tax-free insurance proceeds can be used to offset the taxes and costs at death without burdening survivors or requiring the sale of assets like a family cottage. This leaves more of your wealth intact.

Wealth is not in making money, but in making the man while he is making the money. – John Wicker

There's more to wealth than financial rewards, but the financial rewards are nice too. All the best with your voyage.

Links

• Thoughts on The Dip by Seth Godin
  
• Are You Entrepreneur Material?  (Thicken My Wallet)
• How To Be A Better Employee (Thicken My Wallet)
• Losing Your Livelihood: Insuring Against The Risk
• Why Critical Illness Remains Unsuccessful
• The Overlooked Advantages of Universal Life
• The Original and Overlooked Tax-Free Savings Account

Flying Without A Full Tank

Four police officers boarded the plane upon landing in Toronto and peacefully removed two passengers without drawing their weapons. Thus ended my previous flight to Calgary.

The Next Flight
What a beautiful morning, bright and sunny. I'm in an airplane heading to Calgary again. The doors have been shut. We have our seatbelts fastened firmly and our trays locked in the upright position. No one is sitting beside me --- about 10% of the seats are empty.

So why are waiting for more fuel?

Glad But Puzzled
Would you rather
A. leave on time but without enough fuel?
B. get enough fuel but leave late?

You'd probably pick B because you aren't given the option C:
C. leave on time with enough fuel

We had no choice and got option D:
D. leave late but with enough fuel

Maybe we didn't top up because fuel is cheaper in Calgary? That shouldn't matter because the flight had a fuel surcharge of about $200 for a round trip.

The plane didn't move for a smidgen for an extra 28 minutes. I figured we'd fly faster to make up for lost time, which would use up more fuel . Wrong! We landed 37 minutes late. Pity the passengers waiting to board in Calgary for the continuation to Vancouver.

Why More Fuel?
Why didn't the plane have enough fuel in the first place? It did until last minute passengers boarded. Once the pilot found out, he ordered more fuel. If you fly over the Grand Canyon in a small plane, you get seated based on weight. That's a tad scary. Luckily, a Boeing 737 isn't as finicky.

How Much Fuel Is Enough?
I talked to the airline afterwards. The plane needed enough fuel to reach the destination and an alternate, plus a margin of 1,000 pounds. The plane refuels at each stop. The tank is not filled up because of the weight of the fuel.

Passengers lose. When a flight is full, we are crowded and wait longer for boarding, a washroom, in-flight service and deplaning. I didn't realize that a comfortably-full plane could be delayed too, thanks to a handful of last minute passengers.

Our flight plan got updated too. Otherwise, we could have ended up in Colorado, a passenger quipped. Unlikely, I thought --- we'd need more fuel.

Thoughts on Sicko

I cannot believe, nor even pretend
That the thunder I hear, will just disappear
And the nightmare will end.
--- David Gilmour, Out Of The Blue

Sicko is not a balanced documentary. So what? Michael Moore has things to say. We can benefit by watching, even if we don't agree with all his points.

45 million Americans don't have health care. The 200 million who do, may not be getting good enough health care because of the profit motivations of the private suppliers. The United States is alone (among comparable countries) in not providing public healthcare.

Major Points
The film shows that the average person can get better health care in other countries such as Canada, Britain, France and Cuba. How can a country without healthy citizens excel? The American for-profit healthcare industry is not shown in a good light. The poor perceptions can add to anxiety in other countries regarding the likelihood of getting claims paid for disability, critical illness and long-term care.

Observations
Life often looks rosier in other places. France in particular looked like a country where life is much more balanced than it is here in Canada and the United States. Naturally, there are costs to providing the government services the French seem to enjoy.

I felt sad --- very sad --- to see that 9/11 rescue workers have not been getting proper medical care. Their actions were so selfless.

Sicko is well worth watching. You're sure to leave the theatre disturbed about the health care that Americans receive. Overall, I'm glad to be living in Canada with universal health care.

Happy Canada Day!

Links

• 'Sicko" numbers mostly accurate (CNN, June 30, 2007): "... surprisingly few inaccuracies in the film..."

WHY CRITICAL ILLNESS INSURANCE REMAINS UNSUCCESSFUL

Critical illness insurance (CII) provides very valuable protection and sells well in countries like the United Kingdom and South Africa. Why not in here? This has been a puzzle since the introduction of CII to Canada 11 years ago. We have a huge market, excellent products and fair prices. What went wrong?

Huge Market
Life insurance is considered a "selfless" purchase: the benefit is paid after your death. In contrast, critical illness insurance (CII) is "selfish": you use the benefits for yourself. So CII suits single people without dependents, males and females. Do you have a mortgage? If you're married, you and your spouse can have your own policies. You can buy coverage on children. You may want a plan that returns your premiums if you make no claim.

The World's Best CII?
Canada learned from the experiences of other countries and created what may be the world's best CII plans. In other countries, insurers were able to increase the prices after you've bought a policy. In Canada, prices were guaranteed. Thanks to competition, prices were also reasonable. Experience shows that the prices were actually too low for the benefits provided.

But Low Sales
In 2006, only 85,000 CII policies were sold in Canada --- a drop of 5% from 2005. Including sales from all previous years, there were only 322,000 policies still in force. That's roughly the population of Oshawa (ON), Victoria (BC) or Windsor (ON). That's not much considering our population is almost 33,000,000 (see the nifty Statscan Population Clock).

There are various reasons

• lack of standard definitions
• poor marketing by insurers
• steep learning curve and discomfort of advisors
• perception of high prices
  
• high decline rates

Let's look at a few in more detail.

Mangoes and Papayas
Term life insurance plans are considered interchangeable. So products are often selected on the basis of price.

To prevent critical illness insurance from becoming a commodity, insurers used different definitions and covered different numbers of conditions. This made product comparisons more difficult.

• Is it better to pay more to have more conditions covered (e.g., 21 instead of 19)?
• Is it better to have stronger definitions and fewer conditions covered?
• Does a higher price mean a better product?

Suppose you're a 30 year old female needing $100,000 of CII and you pick Term To 75 with level premiums and return of premium. The monthly price ranges from $53 to $94.

The Definitions
Suppose your policy defines a coma as a deep state of unconsciousness, with no reaction to external stimuli or internal needs, persisting continuously with the use of life support systems for at least 96 hours. Would your claim be paid if

• still showed signed of primary defensive reflexes to external stimuli? or
• you were in a coma but not on life support?

How would you and your family cope if the claim were not paid? How would you feel about the advisor who recommended the policy over one which would have paid? How would you feel about the insurance company which denied the claim?

The Price
The price of critical illness insurance looks high when compared with life insurance, but this is comparing mangos and papayas. They cover different risks and different probabilities of claim.

Denial of Claims

When you're interviewing job prospects, be wary of the candidate who's too eager to join you. They know something you don't. And that won't be in your favour.

A person who knows they are in the early stages of a critical illness may be highly motivated to buy CII, in the hopes that the insurance company won't find out. This does happen. A study by a reinsurer showed that 15% of claims were denied in 2001. Of these denied claims, here are the reasons why

• 40% - misrepresentation by the client
  
• 20% - 90 day cancer exclusion
• 20% - in situ cancer
• 20% - heart attack did not meet the contractual definition
  

So most of the denied claims were not paid because the person insured knew more about their health than they disclosed.

What This Means To You
Critical illness insurance offers valuable protection at fair prices to healthy Canadians (see Critical Illness Insurance: The Basics). Yet so few of us protect ourselves. You can investigate your own situation by finding an advisor who is knowledgeable about this type of product.

CRITICAL ILLNESS INSURANCE: THE BASICS

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.

Complications
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, criticalillnessinsurance.ca is more educational than most.

Links

• Why critical illness insurance remains unsuccessful
• Can "cancer" be more harmful than the disease? (The Globe and Mail, Dec 2011) [new]