Brian P. has been a great reader and commenter of this blog and he was inspired to write a guest blog post about critical illness insurance and the necessity of it (versus just regular insurance paid out in the event of death). I know that most people end up physically disabled and unable to work instead of dying “straight up” so to speak, so should someone get insurance for that as well? Well, Brian hopes to answer the question. I agree that critical illness insurance is important to consider, because you never know what might happen to you. I heard as statistic once that as working adults, we have 1 in 3 chance of being disabled (for some reason or other, e.g. needing surgery, having cancer and needing chemotherapy, having a stroke) long term and being unable to work. So here are Brian's thoughts on this. Enjoy! (Well, not sure how much you will enjoy it since it IS a depressing subject… but important to discuss nonetheless!)
Critical Illness Insurance was developed by Dr. Marius Barnard (the brother of Christian Barnard, the doctor who performed the first successful open heart transplant surgery) in South Africa in 1983. Dr. Barnard saw an need for insurance that paid a “living benefit” to those who survived a major illness to offset lost income and pay additional expenses.
Why would some consider Critical illness insurance?
When one has cash one has options.
Crisis happens anytime and usually the worst time. Your health is your most important asset!
Company disability plans pays maybe 60% of someone’s income, the question is can one live with almost half their pay cheque?
What is critical illness insurance? Conditions currently covered in Canada include:
- heart attack, stroke, cancer coronary artery bypass surgery, multiple sclerosis, kidney failure, paralysis, blindness, deafness, rheumatoid arthritis, benign brain tumour, loss of limbs, major organ transplant (or on waiting list), Alzheimer’s disease, Parkinson’s disease, motor neuron disease (a.k.a. ALS or Lou Gehrig’s disease), coma, loss of speech, severe burns, occupational HIV infection, late onset insulin dependent diabetes, aortic surgery, heart valve replacement, loss of independence
One could get a lump sum up $2,000,000 paid thirty days after diagnoisis. This money has no effect on any disability payments…meaning one’s lifestyle financially would not have to change for quite a period of time.
If one had a heart attack or cancer as an example in as little as six months they may able to go back to work..which means no disability payments. With money one could still put kids through school, pay off a mortgage take more time off work and spend it with their family and do what he/she wants to do. Also he/she as access to some of the best doctors (known as best doctors that may work privately, so to speak) for a much needed second opinion.
Many people have insurance on their cars, homes and would want full replacement value if destroyed. Since a person's human life value is so expensive people somehow feel one can be self-insured… which for only a few people this is possible given a long time and a lot of money. Critical illness insurance helps fill the gap since the reality is many people do not die right away… they get sick and survive many serious illnesses like cancer or stroke as an example.
Why won’t some people buy this type of insurance?
Here are some common objections:
- It will not happen to me. It’s like saying I have never being in a car accident because I am a careful driver.
- My family history is excellent no one has ever had cancer, heart attack, stroke or any other illness they just passed away in their sleep of old age!
- It costs too much! (most common). I’d rather save the money, if I need it I can get it.
- (similar) How about just being self-insured, rather than paying high premiums?
Ok, here is some math why (saving is not possible for many people) this may not work for the average person.
Especially in this market. In this example 10% rate of return for 20 years is needed
Example 40 year old female wants to compare been self-insured vs having critical illness insurance coverage for $100,000 which would be paid out after thirty days of diagnosis.
Premiums would be $128 per month she has the option to get all her money back after 20 years coverage is up to age 75. Or if she died within the 30 days the premiums would be refunded to here beneficiaries
If she was to invest the $128 per month for twenty years and could get 10% return guaranteed she would have $97,199 which she would pay taxes on. 240 months X 128= $30,720
$97,199- $30,720 = $66,479 X 50% (capital gains) = $33,239 X .45% (personal tax bracket) = $14,957 taxes owed to CRA
Her net cash would be $82,224 a far cry from $100,000 even with a 10% return every year on her money after 20 years!
Remember, having money is equivalent to having more choices. Choices such as taking time off work if needed and spending it on yourself or with family so that you can get better and recover. Serious illness can last for months or years and financial backing is critical to protect yourself, your family, and your money.
Here are a few more points he wanted to add that paint the picture further:
Trends for health care…Ontario.
- The Ontario Auditor General has revealed that government funding projections for the next two years mean $1 billion would have to be carved out of hospital spending and $2.05 billion out of OHIP. At the same time, home care funding increases would be less than one-third of the rate of the last eight years and long-term care homes' funding would be half the rate of the last eight years.
- More than 30,000 Ontarians are waiting for a hospital bed, long-term care placement or home care:
- 24,000 Ontarians are on wait lists for long-term care placement.
- 10,000 Ontarians are on wait lists for home care.
- At any given time, 592 Ontarians are waiting in emergency departments for hospital beds.
- 2,271 Alternate Level of Care (ALC) patients are waiting in hospital for a long-term care bed, while 773 ALC patients are waiting in hospital for another type of hospital bed and 135 ALC patients are waiting in hospital for home care.
Another link people may want to check out http://www.hrsdc.gc.ca/eng/
The Alzheimer Society estimates that approximately 500 000 Canadians are currently living with Alzheimer’s disease, and it is expected that prevalence will increase by up to 50% within 5 years.
24.3% of Canadian adults with disabilities who visited at least one health professional in 2005–2006 had out-of-pocket expenses for those visits.
In a nutshell Critical illness & disability (can do a seperate blog) helps fill the space for our failing safety net. As governments look to cut costs.
Nutshell…here for you in BC
Published: December 21, 2011 11:00 AM
Updated: December 21, 2011 2:34 PM
VICTORIA – The federal government's new formula for health care transfers is expected to cost B.C. $256 million a year starting in 2014.
The change is not related to Ottawa's move to tie health funding to economic growth, which doesn't take effect until 2018. Before that happens, the federal transfer is moving to a per-capita formula and ending dedicated funding aimed at certain surgical wait times and other priorities identified in past federal-provincial agreements
Readers, what do you think about the graphic above? Shocking isn't it? What are your thoughts on critical illness insurance?