Let’s Talk……..Critical Illness Insurance

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If you’re like most people you understand the need for Life Insurance to help protect your family and provide for them when you are gone. You buy car and home insurance in the event of an accident or a flood. But what about helping to provide for your family if you are still with them but suffering from a Critical Illness?

Every year, hundreds of thousands of Canadians suffer from serious illnesses each year. In their 2018 publication, the Canadian Cancer Society estimates that 206,300 Canadians will be diagnosed with cancer in 2017, and that number is expected to increase. Similar projections regarding heart disease came from the Heart & Stroke Foundation, projecting that the number of people affected with heart disease has nowhere to go but up.

Thanks to advances in medical science, the majority will survive, but recovery is often long and carries a financial expense that can leave families devastated. While we are fortunate to live in a Country that provides Universal Health Care, there are a number of expenses that they don’t cover.

Non-medical costs may not be covered by provincial health plans or basic health insurance so you may have to cover things like:

· travelling to and from treatment or appointments

· some drugs

· child care

· home care

· nutritional or food supplements

· medical equipment or supplies

You may also need to take unpaid time away from work, or if you are self-employed, the financial impact of a Critical Illness can be hard for you and your family.

What can Critical Illness Insurance Do for Me?

Critical Illness Insurance provides a tax free benefit when you are diagnosed with a covered condition and you meet the waiting period. The full list of covered illnesses varies from provider to provider, but typically they will cover 25 conditions, which include Cancer, Heart Attack, Stroke and Coronary artery bypass which are considered the four “Big” conditions.

Consider these statistics

· 1 in 2 Canadians will develop Cancer in their lifetime.

· The average cost of a single course of treatment with current cancer drugs is $65,000 with the individual being responsible for up to $13,000 or more of the cost.

· 10min – Someone in Canada has a stroke every 10 minutes.

· 75% of those who have a stroke live with some impairment or disability.

· An estimated 564,000 Canadians are currently living with Dementia.

If you are diagnosed with a Critical Illness, how long could you live off your savings or would you need to redeem investments to maintain daily living. Could you reduce your expenses? Would you have to delay retirement? Go into debt? Or even downsize your home?

Critical Illness Insurance provides a benefit when it is critical and is designed to help take your mind off your finances so you can concentrate on getting better.

If you haven’t added critical illness insurance to your plan we can help…..Let’s have a quick chat to make sure your family and your future are secure.

The information contained in this post is not intended as insurance, investment, tax or legal advice and is provided as information only. To learn more please email us at [email protected]

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What Events Should Trigger a Life Insurance Review?

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Last week while I was meeting with a new client over coffee, I ask a simple question.

“When was the last time you and your wife reviewed your life insurance coverage”?

Unfortunately, I wasn’t surprised by his answer of “I’m not sure……. maybe 5-6 years”. The fact is Life Insurance is often forgotten until it’s too late or when those premium renewal dates come up.

We all have hectic lives with other priorities, but it’s important to pay attention to the not-so fun items that can protect our families. Here’s a list of some life events where I strongly encourage you to review your life insurance.

Your Wedding

You’ve had the wedding of your dreams and a beautiful honeymoon on a tropical island; you now look forward to the rest of your lives together. Even though this is one of the happiest times in your life, you never know what’s around the corner and preparing for the ‘what if?’ scenario is important in protecting your loved ones. Things such as final expenses, outstanding debt and income replacement needs to be considered, especially if your partner depends on you financially.

Purchasing that Dream Home

Purchasing a new home is an exciting time and a stressful time. Trust me, as I sit here writing this article, the plumbing and duct work is being installed in our new home that is months behind schedule.

This purchase not only adds an asset to your balance sheet but also a liability until you payout your mortgage.

Mortgage payments can result in one of your largest monthly payments, that either you or your spouse might not be able to make alone. Increasing your insurance coverage would allow your spouse to pay off the remaining mortgage balance. Alternatively, they could invest the proceeds and create a stream of income to meet the monthly mortgage payments so that your family is not forced to move from the home.

First comes Marriage then comes……Baby

To me, this is the most important life event where you absolutely need to assess your insurance needs, as well as start mapping out your estate planning. We all know that having children isn’t cheap. The cost of clothing, childcare, education expenses and extracurricular activities keeps rising. In the event of a tragedy, you or your spouse could be left both emotionally and financially devastated. When determining the amount of coverage, these factors as well as loss of income should be included in your calculations. Ensuring that your family is taken care of financially in your absence is not something you want to overlook.

Job Changes

How would leaving a job, receiving a substantial pay raise or entering into retirement affect you?

If you are leaving a job, review your coverage to see if it is portable. When starting a new job, there is normally a waiting period that must be completed before you are eligible for company benefits. If you have large outstanding debts or other responsibilities, you might consider increasing your personal insurance to cover this period.

Since the trend is not to stay at the same job for ever, it is recommended that you have personally owned coverage that you maintain no matter where you are working, and use your group plan to top up your life insurance coverage.

Receiving a substantial pay increase will likely lead to a higher standard of living. With this milestone, you should review your loss of income calculation and make changes to your coverage as needed.

Hopefully by retirement you have the mortgage paid off, and minimal debt. When preparing for retirement, it’s important to make sure your income streams are protected. We also want to protect our estates from the tax man, so while the need for life insurance may not seem necessary it may be relevant to the planning that was done years before.

Two Years

You should review your life insurance every two years at a minimum. While we can predict and plan for some life events, some we cannot. And while we can predict some, you can’t guarantee that you’ll be insurable. I was recently at an education session and one of the speakers made this statement:

“Nobody is going to sell you life insurance when you are in an ambulance or lying in a hospital bed. Sure you can buy life insurance without having a physical, but there are limits. That’s why it’s important to have the right coverage in place against foreseeable risks today”.

If you feel that your Life Insurance Planning has made its way to the back of a file and would like a complimentary review of your insurance needs, and how they fit into your long-term financial plan, please contact us.

Kevin J. Zakus, is the Managing Partner at Zakus Kowalchuk LLP in Kelowna, British Columbia. You can email him at [email protected].

Kevin’s opinions and comments expressed on this site are his own and may not accurately reflect those of the firm. The information contained in this post is not intended as investment, tax or legal advice and is provided as information only.

RRSP vs. Mortgage Contributions?

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I have an extra $1,200.00…what should I do?

This might be one of the most asked personal finance question in Canada. Most people would lean towards putting money into an RRSP because of the tax credit and the possibility of a higher return. However, some people don’t realize the tax savings related to reducing their mortgage principle.

So what is the right answer? To help you make the right decision we must first look at both options.

First let’s look at the pros and cons of each strategy:

Mortgage Prepayment

· Putting extra money against your mortgage will certainly help you become mortgage free and debt free sooner.

· Your mortgage payment is a combination of interest and capital, but in the early years of your mortgage more of your payment goes to interest.

· Any “pay-down contribution” goes entirely against the capital and cuts the length of time and total interest paid dramatically.

As an example, if we have a $120,000 mortgage with a 25 year amortization period, paid monthly, adding that extra $1,200.00 per year for five years would reduce the repayment schedule by 1yr 8 months and could save $8,033.04 in interest.

Sounds good doesn’t it? And most people would elect to put this into action, but we still need to look at the effects of putting those funds into the RRSP.

RRSP Investing

If you take this amount and invest it into your RRSP, not only will that money grow tax deferred each year, but you also receive a tax credit for the annual contribution. This can result in a tax refund that we have all received at some point in our working years. The key is to make sure we use the refund to reinvest verses using it as a cash windfall for a holiday or simply spending it.

Let’s look at the numbers:

If we invest that same $1,200.00 in each of the next five years, with an annual rate of return of 5% you would have $6,962.00 in your RSP. Now let’s assume you take your annual refund and invest it back into your RSP. Assuming a marginal tax rate of 22.70%, your RSP could now be worth $8,605.00 in year five.

Saving for your retirement is always a good idea and taking advantage of compounding growth and tax deferral will see you build a sizable nest egg for your retirement.

Looking back at our example, with an interest rate of 3.89% on the mortgage, and if you can realize a rate of return of 5% each year in your RRSP, then on paper investing the extra funds seems like the right choice. However there are no guarantees that the markets will produce a 5% rate of return year after year.

The rates we pay and the returns we earn are not guaranteed. So what is the right choice? Like most things, there is no right answer and it will depend on your personal situation. However both options or a hybrid approach should be evaluated to determine the impact on your financial plan.

Kevin J. Zakus, is the Managing Partner at Zakus Kowalchuk LLP in Kelowna, British Columbia. You can email him at [email protected].

Kevin’s opinions and comments expressed are his own and may not accurately reflect those of the firm. The information contained in this post is not intended as investment, tax or legal advice and is provided as information only.