Almost half of all Canadians will receive some grim news in their lifetime: they’ll be diagnosed with cancer, according to the Canadian Cancer Society.1 Along with that development — a ray of hope. The average survival rate for all types of cancers is now about 60%.2
With so many cancer victims surviving, the benefits of critical illness insurance (CII), which covers cancer and a wide variety of devastating illnesses, have never been more significant and noteworthy:
- CII provides a lump-sum payment, which gives clients flexibility to use the benefit any way they choose.
- CII can help clients manage additional costs, including taking an extended leave from work, travelling to treatment centres, paying for medication not covered by a health plan, buying medical equipment, and more.
- Clients can avoid making early withdrawals from their retirement savings to cover health-care costs.
Here’s an example to illustrate the potential effects of a serious illness on retirement savings. In the graph below, you can see how Scenario A* shows a man would have about $1.3 million by age 65. If he waited until he was age 71 to withdraw the funds, he could have over $1.7 million in retirement.
*Assumes he has saved $200,000 in an RRSP and $40,000 in a non-registered savings account at age 45; he puts $18,000 per year into his RRSP and $3,000 per year into his savings for the next 20 years, with a 5% growth rate and a 35% tax rate.
The graph below takes Scenario A and compares it with Scenario B, which shows what happens if the man is diagnosed with a serious health condition at age 64.** The man would have under $1.3 million by age 71 — over $450,000 less than the projected value of Scenario A and significantly less than the estimated $1.5 million he’ll need to meet his retirement goals. Scenario B illustrates the significant effects a critical illness can have on retirement savings.
**The projection uses the assumed expenses estimated at $140,000, increased by inflation to $250,000 over 19 years. Assumes a 5% pre-tax growth rate.
The graph below shows Scenario C, with a CII policy having a $250,000 benefit. The planned deposits to RRSP and non-registered savings will be reduced by the annual insurance premium of $5,605. If the insured suffers a covered critical illness, he’ll receive a lump-sum benefit that will reduce the likelihood he’ll need to withdraw these funds from his savings. At age 71, he could achieve his retirement goal with $1,496,245.*** This amount is over $200,000 more than if he had to recover from a serious illness, without funds from a CII policy.
***Assumes 5% pre-tax growth rate and illness-related expenses don’t exceed $250,000. Scenario C results were developed manually.
Critical illness insurance: Imagine the impact — A conversation with Sam and Anita
See how a serious illness would affect a couple’s finances, and how three different financial strategies use CII to help at various stages of their lives.
But why buy CII for children?
Parents will do whatever they can to protect their children and keep them healthy — it’s second nature, even as the children grow older.
No one likes to think about the possibility of children becoming seriously ill, but it can happen. When a child insured by a CII policy is diagnosed with a covered illness and survives the waiting period, the policy owner receives a lump sum payment that can help cover medical and other costs that could, otherwise, pose big financial problems.
Did you know?
In Ontario, families of children fighting cancer see an average of more than $28,000 in costs in the first three months following the diagnosis.3
Ask clients these questions to help them consider the costly implications of a serious illness:
- Would they be able to take time away from work to care for the child?
- How would they pay for the best treatment?
- Could they cover costs not covered by provincial health plans?
- Would they be able to continue to save for their child’s education or their retirement?
The lump sum payment from a CII policy can help parents focus on their child’s recovery, ease the financial burden a serious illness would have on the family, and allow them to continue to contribute toward their retirement savings — whatever they need.
One of the smartest choices clients can make is to include the Automatic return of premium on cancellation or expiry option. It provides the opportunity to get 75% of the premiums back if clients don’t make a claim by age 25. Clients automatically receive a lump sum payment, and their children’s coverage continues.
It’s a two-fold advantage:
- Clients get peace of mind knowing their children are covered in case of a serious illness.
- They receive money when the children may be paying off a student loan or buying their first home.
If clients cancel the policy later, they may be able to get the rest of their premiums back.4
CII works for parents approaching the critical saving years before retirement — ages 45 plus — who have young children, as well as grandparents who want to help their grandchildren.
When grandparents purchase CII, they help their grandchildren:
- Lock in premiums while they’re young, and
- Guarantee their future insurability.
And did you know that when CII policy ownership transfers from a grandparent to the parent or grandchild, there are no tax consequences? Since the CII policy transfers to an adult child or grandchild if the grandparent transfers ownership when the grandchild is old enough to own the policy, the attribution rules don’t apply.
Clients diagnosed with a critical illness or whose children are diagnosed with a serious illness wouldn’t want to be forced to dip into their hard-earned retirement savings, or delay their plans for the retirement they’ve spent so long working on and planning for.
It’s not something we like to think about, but the chances of getting and surviving a serious illness such as cancer are increasing. Help clients understand the many benefits of CII, and the role it can play in their retirement plans.
1 Report by the Canadian Cancer Society, June 2017.
2 Canadian Cancer Society, 2017.
3 Tsimicalis, A. Costs Incurred by Families of Children Newly Diagnosed with Cancer in Ontario, University of Toronto, 2010.
4 With the return of premium option for Sun Critical Illness Insurance, 75% of premiums are automatically refunded on the 15th policy anniversary or the policy anniversary nearest to the child’s 25th birthday, whichever is later. The remaining returnable premiums become available if the policy is cancelled on the later of the 30th policy anniversary or the policy anniversary nearest the insured person’s 40th birthday. Benefit payments are made to the policy owner. This optional benefit is available only on child plans when the payment period is “to age 75” or “to age 100.”