HOW TO BUDGET FOR CRITICAL ILLNESSES
Medical advances for Canadians can also mean profound financial consequences
We Canadians are living longer because most of us can survive cancer and other critical illnesses due to advances in modern medical technology.
One in three Canadians will develop cancer in their lifetime. The five-year survival rate after diagnosis of cancer is 63 per cent.
One in four Canadians will contract some form of heart disease. Eighty per cent of heart attack and stroke victims survive.
What are the financial consequences of surviving a critical illness?
COST OF CRITICAL ILLNESS
After a critical illness diagnosis, you would have to make decisions about medical treatment and learn how to adapt to a new lifestyle. Fortunately, government health plans and private extended health plans cover many medical expenses — that is, if you’re willing to wait in line for treatment.
Could you afford to pay for immediate treatments if you get a referral to a top medical specialist in another province or country? Could your spouse take time off work to become your caregiver? How about renovating your home to make it wheelchair accessible? Perhaps you would like to take your family for a once-in-a-lifetime vacation. Would you decide to retire early?
Where would the money come from to cover those expenditures?
EMERGENCY FUND
Do you have a large emergency fund? Can your family help? Would you dip into your RRSP savings? If you are lucky, maybe a good friend could launch an online fundraiser campaign.
DISABILITY INSURANCE
Disability insurance (DI) only replaces lost wages. DI is not designed to provide lump sum benefits to pay off debts or cover big one-time expenses associated with a critical illness.
During our working years (up to 65) we use disability insurance to pay for basic, everyday costs of food, shelter and clothing in the event we can no longer work due to an accident or sickness. Typically, monthly disability benefits replace about 70 per cent of our income.
CI INSURANCE
Critical illness (CI) insurance is designed to pay a tax-free lump sum if you are diagnosed with, and survive, a life altering illness such as cancer, heart attack, stroke, multiple sclerosis or Parkinson’s disease as listed in the policy.
CI insurance was originally conceived by Dr. Marius Barnard in South Africa in 1983. He watched his patients survive their heart transplants but then be ruined financially due to high medical costs.
The average size of a CI insurance policy is $100,000. The majority of claims are paid out for cancer, heart attack and stroke. Claims can only be paid after surviving a 30day waiting period.
The odds are three times higher that you will develop a critical illness in the next year than you will die in the next year. Consequently, premiums for CI insurance are about three times higher than for term life insurance.
Most financial advisers say that life insurance and disability insurance are a higher priority than CI insurance. However, CI insurance can be useful for someone, such as newly self-employed persons, homemakers, students, part-time and seasonal workers, who cannot qualify for disability insurance. Generally you can buy coverage up to age 65 to cover you until age 75.
To help make CI premiums tolerable, consider a return of premium rider, which gives you all your money back if you do not experience a covered critical illness. You’d pay more in the short-term but save more in the long run. Of course, you have to pay the premiums for a period such as 15 or 20 years before the money is returned.
For more information about CI insurance, find a financial adviser who is a certified health insurance specialist (CHS). Terry McBride, a member of Advocis, works with Raymond James Ltd. The views of the author do not necessarily reflect those of Raymond James Ltd. Information is from sources believed reliable but cannot be guaranteed. This is provided for information only. We recommend that clients seek independent advice from a professional adviser on tax-related matters. Securities offered through Raymond James Ltd., member of the Canadian Investor Protection Fund. Insurance services offered through Raymond James Financial Planning Ltd., not a member of the Canadian Investor Protection Fund.