Imagine if one of your clients were gearing up to enjoy the pleasant retirement he’d been planning for years, but a cancer diagnosis blindsides him. Unfortunately, to pay all of his recovery-related expenses, he may have no other option than to tap into the RRSP savings he has spent so long building up.
A health insurance solution could have reduced the financial impact.
Stéphanie Paillé, regional sales director at Sun Life Financial, explains why coverage like critical illness insurance (CII) is such an invaluable component of a retirement plan. “Astonishingly, 32 per cent of benefits are paid to clients in the first five years after their policies are issued,” she says. As well, the average age of benefit recipients is only 49, and the average benefit in 2013 was $73,610. “The example of a client having to deal with cancer is realistic, since it tops the list of illnesses with the most frequent payouts,” adds Paillé.1
It may be in your clients’ best interests to use some of the money they usually put into their retirement savings or other investments to buy a CII policy. “This strategy can help to preserve clients’ investment portfolios by paying out a non-taxable lump sum when clients are diagnosed with a covered illness and survive the waiting period,” explains Paillé.
This benefit can also help make up for lost income resulting from:
- an extended absence from work,
- travel expenses,
- treatment from medical professionals,
- costs related to private home nursing care, and
- medications not covered by a provincial or group benefits plan.
Your clients could also choose to pay off their mortgages or catch up on unused contribution room in their RRSPs, if one of these options would be more appropriate for their situation.
An example is worth a thousand words
A great tool you can use with clients – CII Asset Protection Strategy – measures the impact of a critical illness on their retirement portfolios (see “Illustrations” under the “Related links” heading in the link).
Michael, a non-smoker, was 40 when he bought a Sun CII T75 policy. He earns $70,000 annually. Michael’s policy has a benefit of $206,000 and Return of premium on cancellation/expiry at age 65. He pays an annual premium of approximately $3,467.2
The scenarios below show how much his investment portfolio (current balance of $140,000) would be worth at a savings rate of $12,500 ($7,000 in registered retirement savings plans and $5,500 to non-registered savings) per year that he intends to maintain for 25 years, assuming a 3% growth on the registered contributions and 1.65% on the non-registered contributions.
What would happen to his savings, however, if he were diagnosed with a serious illness and needed to withdraw from his retirement savings? The following chart shows that costs could be significant:
|Scenario descriptions||Portfolio value at age 65||Impact on portfolio at
|1||Michael continues his annual contributions without taking out CII coverage and without experiencing a critical illness.||$703,754|
|2||Michael continues his annual contributions without taking out CII coverage, but experiences a critical illness when he turns 50.||$246,360||$457,394|
|3||Michael continues his annual contributions, less the premium payable for the CII coverage, and stays in good health until the return of premiums at age 65.||$682,460||$21,294|
You can see how a critical illness without adequate insurance coverage could make a significant impact on his savings. In our scenario, a critical illness not covered with CII removed $457,394 from Michael’s portfolio. “Conversely, the third scenario involves a cost of only $21,294 over the 25-year period. It’s peace of mind at a very reasonable cost, compared with the price your clients would pay, if they didn’t plan for the risk of a critical illness,” concludes Paillé.
A valuable optional benefit
When they buy insurance, clients aged 18-50 can choose to add an option that will allow them to later convert their CII policy to long term care insurance (LTCI), without providing evidence of insurability. “The maximum amount that can be converted is $250,000 per insured person, which corresponds to a weekly LTCI benefit of $1,250,” explains Paillé.
Expert medical information and opinions
Through their CII coverage, clients have access to Best Doctors®, an international network of physicians who can help them better understand their health conditions and the available treatment options. The insured client’s spouse and dependent children can also make use of this service while the CII policy is in force. While this complementary service isn’t meant to replace the role of the family physician, it can connect clients with top specialists around the world, if they are uncertain of a diagnosis or have questions about their treatment options. Best Doctors can also help clients locate physicians who may be taking on new patients.
Reducing the risk
Canadians know what happens after a doctor detects a serious illness: nine in 10 Canadians say that if they were to experience a major health event, their personal financial situation would be affected.3
A serious illness has the potential to decrease significantly the value of a retirement portfolio. In some cases, clients may not be able to recover financially by the time they retire. By discussing this risk with your clients, you can help them take action to protect their assets – ultimately fortifying their foundation for retirement.
1 Sun Life’s Individual CII claims experience, 2013.
2 Go to sunlife.ca/advisor to access more resources for the Critical Illness Insurance Asset Protection Strategy.
3 2011 Sun Life Canadian Health Index.