Don't forget critical illness insurance
As life expectancy increases and more Canadians join the ranks of the self-employed, critical illness insurance can be a valuable element of a retirement plan
Date: November 8, 2017
No one ever thinks critical illness will change their life. It only happens to other people — or so the thinking goes. But the chances of falling victim to a critical illness like cancer or heart disease is increasing as Canadians enjoy the longest lifespan of any generation in history. Statistics Canada reports that life expectancy has risen steadily, for both men and women since 1921. By 2031, they estimate that average life expectancy will rise to 81.9 for males and 86.0 for females.
Consider these sobering statistics: According to the Government of Canada, about 2.4 million Canadians aged 20 and older live with heart disease,;" and according to the Canadian Cancer Society, nearly per cent of Canadians will get cancer in their lifetimes., Many Canadians simply aren't prepared to weather the financial storm of a critical illness and the potential devastation to their retirement plans.
"The reality is the longer you live, the higher the risk of experiencing a critical illness, which speaks to the value and need for critical illness insurance," says Helene Michaud, Sun Life Financial's regional vice-president, central region, insurance distribution. "With the great medical advances that we have seen in recent years, the survival rate of several of the critical illnesses has increased tremendously — which is a great news. However, surviving often means there is financial impact during and after a critical illness. This is where this type of insurance makes a big difference."
Advisors have a role to play in educating clients, says Ms. Michaud, because awareness about the need for and benefits of critical illness insurance (CII) in safe-guarding retirement assets among Canadians is still low.
Though critical illness insurance doesn't just cover heart disease and cancer, these conditions account for the vast majority of claims — perhaps as much as 80 per cent of all illnesses, says Ms. Michaud. CII pays a lump sum, tax-free benefit after if the insured person suffers from one of the covered critical illnesses and meets the survival period as described by the policy. It’s meant to help alleviate the financial costs associated with a major illness such as life-threatening cancer, heart attack, stroke, blindness, coma, kidney failure, brain injury, dementia (including Alzheimer's Disease) and other illnesses in the most comprehensive policies.
One of the significant advantages of CII is that clients are free to spend the benefit to meet financial obligations in ways that are most helpful to them. Daryl Diamond, a Winnipeg-based financial advisor and author of Your Retirement Income Blueprint, agrees the need for this type of coverage has never been greater.
"Critical illness insurance is one of those things that people don't have much appreciation for until it happens," Mr. Diamond explains. "It really relieves a lot of pressure on families — whether it helps the spouse take time off work, or gives you the time [you] need to recover from an illness, it's incredibly valuable in a day when we're living longer than ever."
Critical illness insurance for children is an increasingly important part of any family financial plan, says Ms. Michaud. CII for children was developed specifically for illnesses that affect children (including muscular dystrophy, cerebral palsy, cystic fibrosis, congenital heart disease and Type 1 diabetes mellitus). Some products can be tailored to help meet the child's need throughout their life.
Mr. Diamond agrees that CII for children can be an important element of a retirement strategy – even for retirees with adult children. (Child CII plans can continue into adulthood.)
"What are you going to do if your child – a young adult – becomes ill? Of course, you're going to help your child, and that can be really devastating to retirement plans," he says.
CII coverage amounts vary from firm to firm. At Sun Life, CII gives clients comprehensive coverage in amounts from $25,000 to $2.5-million for adults, while it covers $25,000 to $1-million for children.
Whether it be child or adult plans, Ms. Michaud sees a growing need for critical illness insurance coverage as more and more Canadians join the legion of workers in the so-called "gig economy" – a self-employed group of workers without employer benefits. According to a 2016 report by human resources consulting firm Randstad, this cohort of "contingent, consultant and contract" workers is expected to comprise about 35 per cent of the workforce by 2025.
In other words, critical illness insurance can be a valuable part of every worker's financial plan – not just for those well into their careers and contemplating retirement, says Ms. Michaud.
"From the self-employed person who may not have a benefit plan, to the younger person who doesn't have much of an emergency fund if a critical illness was to occur, to parents with young children who don't have a lot of disposable income – the need to have critical illness insurance exists in all those scenarios. Advisors can help clients identify and understand the need for CII and offer appropriate solutions for each client's specific situation."
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