HOW IT WORKS.
Should you be diagnosed with one of up to 26 coved conditions Critical Illness protection gives you a onetime, tax-free, lump sum benefit that you can use however you wish.
All Critical Illness policies cover the three major illnesses which are Life-threatening Cancer as well as Heart Attack, and Stroke. It also provides protection if the person is diagnosed with Alzheimer’s disease, Motor Neuron Disease (such as ALS), Multiple Sclerosis, Parkinson’s disease. These last four seem to be on the rise and affecting people at a much younger age.
Typically, there is a total of 25 different conditions protected.
Cancer is responsible for 30% of all deaths in Canada. (Source: Canadian Cancer Society)
Approximately 35,000 cardiac arrests occur in Canada annually. (Source: Heart and Stroke Foundation of Canada)
Stroke is also common in Canada, with 62,000 cases every year. (Sources: Ontario Stroke Network, Newswire.ca, Heart and Stroke Foundation of Canada)
The combined medical expenses and lost earnings brought by dementia amount to $33 billion. (Sources: Advisor.ca, Canadalife.com)
Dementia is presently the most expensive illness in the country. (Source: Alzheimer Society of Canada)
Around 73% of Canadians aged 65 and above have at least one common chronic disease. (Source: Canada.ca)
There is a very old cliché that insurance people say. The best time to get it is 10 years ago. The second-best time is now. Any time I hear this, it sounds so phony and so salesy I cringe. Here are 3 practical times to put this in place.
If you have an employee benefits program that only offers Long Term Disability, typically you’ll not start receiving any benefits until about 6 months after the event. The benefit amount is 66% of your income unless that amount is capped in the plan. Many businesses are capping this to help them save money. How do you pay your bills in that 6-month window? Normally, it’s employment insurance. The benefit amount is 55%. Again, this is capped to a certain dollar amount. Some companies will offers a salary continuance (most are doing away with this because not only are they paying your salary but the salary of a new person to do your job).
If you’re in this situation, take your gross salary (the amount you receive before taxes) each month. Multiply that by 6 (the 6 months before you receive the Long-Term disability) to give you a benefit amount. For easy figuring, if your gross salary is $5,000 a month times 6 months, a $30,000 benefit amount is what is absolutely needed. Can you have more? Sure. That is totally up to you, but you should have at least this amount.
If you don’t have employee benefits the same math applies however for a longer period. As an example, I have a client that 6-weeks after suffering a heart attack was fully recovered. As I wrote earlier my friend Rob was given 6 months. He lasted 18. Just my thoughts but something that would cover you for 18 months of your salary is a good time frame.
As above, if you are in this situation with a $5,000 gross salary, times 18 months, a $90,000 benefit amount is what is absolutely needed.
You’re a business owner with, say, two or three key people that are the main revenue drivers or are the key operational or business partners. The people that you can’t do without for a long time. The business should own, pay for, and be the beneficiary of the policy. The benefit amount could be either 1-times their salary and/or 1-times the average revenue that they bring to the business. As the company is the beneficiary the benefit amount is paid to the company. The company then decides what to do with the funds.
At the same time, these key people should also have a personal policy for the exact same reason. If they are making a high salary chances are good that their Long-Term disability benefit will be capped leaving them with far less money coming in. Sometimes this puts the person in a situation where they must return to work before they are full recovered just to make ends meet. Typically, if someone is in the position, they are likely to be less effective when returning to the job, meaning that the other staff must pick up the slack.
As with all insurance policies the cost comes down to the person’s age, gender, smoking status, overall health, and benefit amount. Many critical Illness policies also offer a fantastic option. One that I took advantage of many years ago when I took out my policy. It’s called Return of Premium. This means that at a certain point in the future, if you are not diagnosed with a critical illness, all of the money that you’ve pad can be returned to you tax-free. At the time, I looked at it this way. If I’m diagnosed, I receive a large lump-sum amount of money. If I’m lucky and nothing happens, I can get all my money back.
Does that option cost more? Yes. Is it worth it? To me, absolutely!
When you decide to invest in a Critical Illness policy it’s important to first understand what you’re trying to accomplish.
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