On the heels of a previous post where we asked if critical illness insurance was really necessary, we wanted to iterate why you need critical illness coverage.
The reality for most of us is that prior to age 65, we are at a much greater risk of suffering a disability or critical illness than of dying. Everyone understands the need for life insurance to cover off a range of financial risks at different stages of life, should we pass away prematurely. However, few people like to think about the financial risks involved if a family member suffers a serious illness.
35-25-30-200-125, looks like a random sequence of numbers, but it represents a real life story about what critical illness coverage did for one family.
- A 35 year-old man took delivery of a critical illness insurance policy.
- 25 days later he suffered a severe heart attack while working out in a gym.
- 30 days later his life insurance agent delivered a tax-free cheque to him for $200,000.
- 125 days later he returned to work, fully recovered with no impact on his personal finances due to the insurance payout he received.
He did not have to worry about his mortgage, or other monthly payments. He didn’t have to cash in any savings. His wife took time off work to help with his recovery, also with no impact on their finances. They even took a vacation to help with his recovery and they banked what was left over, for a rainy day fund.
You owe to yourself and your family to have some level of critical illness coverage. If one of your family members suffered a critical illness and you had to put your work and life on hold for six months or a year to recover or care for them, could you come up with $25,000, $50,000 or more to cover the bills? Where will the money come from? Without coverage it usually means cashing in savings, maxing out a line of credit or credit cards. And it’s hard to convince a banker to lend you more money if you’re not working and sick!
When you buy any type of coverage, the insurance company sets aside your monthly payments into a reserve account. If you get sick, you receive a tax-free cheque to spend as you please, the policy is terminated, and you stop paying premiums.
For wealthier individuals, consider the payout as return of capital. Let’s consider a $2 million policy designed to be paid for in 15 years. 15 years of $60,000 premiums adds up to $900,000. If you get a serious illness, 30 days after diagnosis you get $2 million back – not a bad return on your investment. Plus you get to pay the premiums slowly over 15 years. If you purchased a return of premium rider, you can get all your money back after 15 years as long as you haven’t made a claim.
Corporately owned critical illness coverage could be considered like an invisible employee. It doesn’t complain, ask for time off, pay raises or more holidays. You can hire this employee for cents on the dollar, and when you get sick the insurance company will deliver a cheque to the company. Corporately owned critical illness insurance is purchased to cover off any business losses incurred if a key employee or shareholder becomes critically ill.
As always, there are lots of choices and ways to structure your coverage. Take the time to sit down with a licensed life professional and review your coverage needs. Most important of all, protect yourself and your family.
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