The magnitude of the relationship between health and retiring early is surprising: around 70% of retired Canadians did not stop working on the date they had planned to, and among them, 41% cited personal health as the primary reason for having needed to retire early.

The possibility of becoming seriously ill is real. Although recovery is the number one priority, it is our duty to understand the potential effects on client assets and retirement plans to ensure their continued financial success. One of the tried tools to safeguard clients’ financial interests for the long term is including critical illness insurance in the strategic planning.

The good news is that if someone gets sick but has secure coverage from critical illness insurance, the impact of that illness on retirement income can be reduced.

How Illness and Disease Affect Retirement Income

Managing finances while battling an illness or disease can create a lot of stress. Worries about whether one’s income will be enough to make payments and paying for living expenses while managing recovery-related expenses can be very daunting.

One option is to draw from funds already set aside for retirement. However, there are downsides to using retirement funds. Any sums withdrawn from an RRSP are subject to a tax.

What can be done?

An option is to purchase a critical illness insurance policy. Critical illness insurance helps policyholders protect their assets when illness strikes by providing a lump-sum payment when they become seriously ill. Depending on the policy, there may be no need whatsoever to withdraw funds from investment portfolios, leaving all investments intact while the client recovers.

Critical illness insurance can be used to replace reduced or lost income for the ill or their spouse if time is taken off for recovery or enable policyholders to afford additional help.

Is Critical Illness Insurance Necessary, How Much Does it Cost, and How Can it be Claimed?

It is important to consider all benefits available to you with your other insurance policies to conclude if there is a gap in coverage. Next, you should consider your personal circumstances and the financial strain that serious illness or disease would bring. Most life insurance plans do not provide coverage for day-to-day living expenses such as travel to and from treatments, home care, and child care, but critical illness insurance can.

Generally, the younger and healthier you are, the lower the premium. It also depends on medical history, family history, the amount of coverage and the number of illnesses covered by the policy. Being brokers for over 25 different insurance companies enables us to shop around for you to find what the best rates.

Claims can be made if a physician, licensed in Canada and specializing in the illness at hand, diagnoses the policy holder with an illness or disease covered by the policy. Payment is generally a lump-sum and paid within 30 days. There are no restrictions on the use of the money, and once the claim is paid, the policy ends. If a claim is never made and the policy holder dies for a reason not covered by the policy, the premiums paid may be refunded to a named beneficiary, and depending on the policy, some insurance companies return a portion of the premiums if the policy matures without a claim having been paid.

Although coverage varies between plans, typical illnesses and diseases covered by critical illness insurance include cancer, stroke, blindness, kidney failure, organ transplant, multiple sclerosis, Alzheimer’s, heart attack, severe burns, Parkinson’s, paralysis, loss of speech, deafness, and more.

What about Disability Insurance and Long-Term Care Insurance?

Long-term care insurance policies provide for personal care such as assistance with daily living activities. They generally reimburse, to a limit, the expenses incurred for care such as in a nursing home or home health care, and they pay a predetermined benefit amount on a regular basis.

Disability insurance policies provide monthly income replacement benefits if the policyholder becomes disabled and can no longer perform the normal duties of their work. The benefit is usually limited to a percentage of their previous salary and ceases with new income or if the policy-holder no longer meets the definition of disabled in the contract. Unlike critical illness insurance, disability insurance policies may have a waiting period from the onset of the disability and the benefit may be affected by other income or the policyholder’s recovery.

What Now?

Critical illness insurance can be a wonderful safety net, especially with its flexibility compared to other forms of insurance. It is designed to reduce the impact of critical illness or disease on a policyholder’s overall financial situation. If you feel that critical illness insurance is important to you and would like to learn more about your options, please call us at 514-934-0586 or 403-228-2378 to arrange an appointment.