Stethascope Heart ShapedWe have all seen the stats. In the years to come, a significant number of people we know will likely be hit with some type of critical illness. In the last 10 years alone, I’ve had four friends discover they had either cancer or Multiple Sclerosis.

Most people have some life insurance, but we believe anyone under 55 should consider owning critical illness insurance as well. And we’ve found a way to fund the policy at almost no cost.

As a consumer, I hate paying for insurance. As an advisor, I realize that insurance helps to protect our clients from some of the disasters that might blow a hole in their financial plan. Every year I shovel money out for car insurance, home insurance, life insurance, disability insurance, etc. I understand the rationale for it, but I hate the idea that I may be throwing away money for something that I may never need. I expect many people feel the same way.

Why does it make sense to have critical illness coverage as well as life insurance? When someone dies, a life insurance policy provides extra cash at a time when the expenses for the household usually drop. Critical illness is disastrous and disruptive in a different way. Work becomes secondary and the primary focus turns to treating the illness. The result is that household expenses usually go up at the same time that income drops, or worse, disappears entirely. If there is no insurance to help with this, a family will likely have to deplete their savings or sell their RRSPs to get by.

This graph captures the concept perfectly for me. The top line shows what likely “would have been”. The lower line shows the impact on long term savings when you have to draw them down before you expected to.

Critical Illness Graph

Critical illness insurance provides a one time tax free lump sum payment to help a family get through this difficult period. Hopefully it will mean they aren’t forced to draw down their long term savings. It allows the person with the illness to step away from work, without fearing the financial consequences, and focus on getting better. Or it can provide money to seek out more promising treatments elsewhere.

Fortunately, several insurance companies have provided a brilliant solution. Clients can buy a critical illness policy and pay the annual premium for 15 years. If they do suffer a critical illness, they are covered. If they don’t, they can get 100% of the money they spent on premiums back.

I can't see a downside. Why wouldn't everyone want at least $50,000 or $100,000 of coverage?

Talk about not throwing your money away. I wish ICBC would refund all the premiums I paid for car insurance the last 15 years!

* Insurance products provided through HollisWealth Insurance Agency Ltd.

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