*As published in the Winter 2014 issue of Life Cents Magazine

After years of saving a couple hundred dollars of each pay cheque into an RRSP you’ve got quite a bit of money accumulated. When your retire the Canada Pension Plan and Old Age Security will cover your basic needs, but your RRSP will allow you to actually enjoy your retirement: travel, relaxation and hobbies hobbies. Unless you got sick and I mean really sick like cancer or suffering a heart attack.

Suddenly you are off work. Your employee disability insurance helps cover the mortgage and car payments but it’s not enough. You start dipping into your RRSP. Your spouse takes a leave from work to be there and help you during this rough period. Without their income you’re dipping even further into your RRSP. Your retirement savings have turned into your “I’m sick and I need extra money” savings.

44% of cancer patients will need to dip into their savings and retirement funds to cover medical costs and lost income.Source: Canadian Breast Cancer Network & Study 2010

Luckily, you recover with many years left to live and work only you’ve got to start from scratch on your retirement savings. Worse yet, you’ve got maybe fifteen years left of work rather than 25 to build it up. How do you catch up on your retirement income goals?

You may not have to. What if you had an insurance policy that allowed you to keep your retirement savings? What if your “I’m sick and I need extra money” funds could be repaid in the form of a big cheque? That’s what critical illness insurance does.

An estimated 2 out of 5 Canadians are expected to develop cancer during their lifetime, but most will survive. 69% of new cancer cases occur among those 50 to 79 years old. Source: Canadian Cancer Society 2012

In 1983, Dr. Marius Barnard witnessed that while more and more of his patients were recovering from serious, life-threatening illnesses, they were often left in financial ruin. He approached insurance companies for help and so began critical illness insurance.

How does it work?

  • While some critical illness policies only cover cancer, most cover the big three illness of cancer, heart attack & stroke and enhanced policies cover up to 25 critical conditions including loss of sight and loss of independent existence.
  • The policies offer various lengths of coverage but the most common types are term policies, till age 75 and till age 100.
  • Often, with the to age 75 or 100 policies, you can add a “return of premium” benefit, which means if you never use the policy, you can get all the money you spent on it back at expiration or at a set date such as fifteen years after you’ve had the policy. With this feature added, critical illness is the only type of insurance with a money back return if you never use it – the only loss is the interest you would have made on the premiums paid.
  • If you are diagnosed with one of the covered critical illnesses, you apply for the benefit.  The insurance company requests a report from your physician to verify the diagnosis and once verified the insurance sends you a cheque for the covered amount, usually after a 30 day survival period.

Lena is a 40-year old, non-smoker in good health. She’s been saving $500 per month into her RRSP for the last ten years and she’s accumulated $80,000. She wants to ensure that money stays there for her retirement income. She estimates that she’d need about $60,000 in the event of a critical illness to allow her spouse time off work, to pay for extra medical treatments and to supplement her income. She purchases a $100,000 Term to age 75 basic critical illness policy with return of premium upon expiry & death for $97.27 per month and lowers her RRSP contribution to $400 per month. If she never gets sick, she will take the $37,828 at age 75 and put that towards her retirement income. If she does get sick, she’ll use the $100,000 for her critical illness and approximate $40,000 remaining will go into her RRSP.

Being diagnosed with any critical illness is scary and stressful and the last thing you need to have on your mind is your financial health.  By purchasing a critical illness policy, you can ensure the illness doesn’t put your retirement plans out of reach – because after surviving a serious illness, don’t you think you deserve that dream spot on the beach?