By Sheila Walkington, Co-Founder and CFO Money Coaches Canada
Names and minor details have been changed to protect privacy.
Most Canadians recognize the importance of making plans for their future, creating a nest egg through RSPs, TFSAs, company pensions, real estate and other investments, but as the saying goes; Life is what happens to you while you’re busy making other plans. What would happen to your nest egg if life threw you a curve ball, such as an accident or illness?
Insurance is one of those topics that many people avoid talking or even thinking about. There are so many different types of policies that it can easily become overwhelming to sort out what you need and what you don’t need. It’s not uncommon for people to opt into a group plan at work and then tuck the benefits booklet into a filing cabinet without really understanding the coverage they have. But when it comes to insurance the more you know, the better you can find a product that suits your situation and protects your future.
The two most common insurance products are Life Insurance (either Term Insurance or Whole Life/Universal Insurance) and Disability Insurance. A third insurance, Critical Illness, is newer in Canada and unlike disability insurance, which is linked to your ability to work and paid-out over time, Critical Illness insurance pays out in full usually 30 days after your diagnosis.
A financial settlement from insurance can take a lot of stress off a bad situation
The death of a spouse, an illness that keeps you from working, high medical bills from a life threatening illness; when times are tough, no one needs financial stress as well. Money doesn’t take away our problems, but it can sure make things a little easier at times. Disability will cover bills if you can’t work, life insurance can pay off the mortgage or debt or cover education costs if a spouse dies, and critical illness can be used to cover medical bills or to hire some help if you are sick.
I recently had a discussion about insurance with Glennis Deslippe, who has been a living benefits specialist with Integral Financial Services Inc. for the last 12 years.
“People tend to buy life insurance in their 30’s as they enter committed relationships and perhaps decide to start a family,” says Glennis, but she remembers a woman she knew several years ago who worked in another insurance office, and passed up an opportunity for life insurance.
“The company where she worked offered to pay the first year premiums for any of their employees, who purchased a policy,” says Glennis, “but this young woman and her husband didn’t take the offer. They thought it was an expense they could defer for a while. Sadly, at 35 she was diagnosed with aggressive stomach cancer and she died by the time she was 36. Her husband was left with a mortgage to pay and two children, ages 3 and 5, to provide for. She had had some long term disability insurance with her company plan, but that hadn’t kicked-in until 120 days after she was off work, and her husband had lost wages by taking unpaid leave during her illness. It was really tragic. Without the financial hardship he could have taken time from work to grieve and be with his children, instead of having to go right back to his job. Had she taken the life insurance, at her age the premiums would have been around $20.00 a month for half a million dollars. It would have made an enormous difference for her husband and children.”
“There is a feeling that we are immune to misfortune or if we just don’t think about it, everything will be fine,” says Glennis. But life throws a lot of curves. One of her recent clients, Marie, was a mid-30’s mortgage broker, who came to the office with her fiancé Steve. Steve wasn’t convinced that they needed insurance since they didn’t yet have children, but Marie was able to convince him by sharing stories from her job. She has seen people of all ages who needed to refinance their home because illness was affecting their ability to make payments or because they hoped to take equity out of their home to meet expenses.
According to the Canadian Cancer Society (based on 2010 estimates) 2 out of 5 Canadians (45% of men and 42% of women) are expected to develop cancer during their lifetimes.
“If you become ill, or disabled in your 40’s,” says Glennis, “at the time when you are really trying to build your nest egg, how is that illness going to impact financially into your retirement? Because with most conditions you are going to survive, but there is going to be some financial impact down-the-road, unless you have a lot of money saved or you have insurance.”
For example, Rita was only in her mid-40’s when a dental procedure resulted in permanent damage to her trigeminal nerve, leaving her with chronic pain and severe difficulty speaking. Unable to continue running her business, Rita found herself without an income.
Sam was a 58 year old business-owner, divorced and working on his PhD when he suffered a stroke. He lost his business and his autonomy, needing to rely on his son to drive him places and help with many of his daily needs.
Rita had long term disability insurance in place so was able to replace a good portion of her lost income and remain independent. Sam on the other hand was able to offset some of his immediate expenses with a payout from critical illness insurance, but since he had no long term disability insurance he was forced by circumstance to begin living on his retirement savings before he intended.
Bill and his wife bought life insurance when he was 40, he chose not to buy disability because of coverage he had at work, but he did buy $25,000 in critical illness insurance. Only six years later he found himself facing bowel cancer. The payout from the critical illness insurance allowed him to pay off his car loan and a few other debts and expenses, which allowed him to focus on making a full recovery.
Many people don’t opt for personal polices because they have group insurance through their employers, but Glennis says that it’s important to know what those benefits are and whether or not they are enough to meet your needs. She had a client who knew that if he were unable to work, he would need $4600 a month to meet his family’s expenses and his disability insurance with his employer would only provide $1500. He chose to take a personal policy that would give him another $2000 a month, with an option to buy more down the road to eventually reach the $4600.
At Money Coaches Canada we guide our clients through our 7 Stages of Financial Well-Being® process, and stage 5, financial security, highlights the importance of safeguarding your finances from the happenstance of illness, accident and death. A Money Coach can guide you towards reviewing your current coverage, whether in individual or group policies, so you can determine if you are adequately prepared. We don’t sell insurance so we always have your goals and needs at the heart of our advice.