Personal Risk Management

People insure themselves and their belongings for various types of risks: Theft, Fire, Accidents, Injury, Death, and Illness. Some things are more likely to happen than others – death for example – 100% chance versus a very low chance of - say - a meteor strike!

In recent years, it has become possible to insure yourself for major illnesses so a lump sum of cash becomes available should you suffer a major illness – this type of insurance is called Critical Illness Insurance. Available in Canada only since 1996, Critical Illness insurance was devised by a pioneering heart surgeon who was concerned that the post-operative stress caused from the financial burden associated with recovery was killing his patients.

Unlike long-term disability coverage that will pay out only in the case of protracted recovery periods, Critical Illness policies will pay a lump-sum non-taxable benefit, usually 30 or 60 days from the onset of any one of certain specified medical conditions, diseases or ailments. No extended convalescence or proven disability is required to collect; only the fact of diagnosis is required. The funds can be used for any purpose - to supplement lost income, take early retirement, pay off a mortgage or other debts or defray the expenses associated with medical treatments, recovery or rehabilitation. If death occurs within the waiting period, the premiums paid will be refunded to a named beneficiary. Some plans will return premiums paid if the contract matures without a claim.

The covered diseases typically include such things as: Heart Attack, Cancer (including stage A prostate & colon cancer), Paralysis, Multiple Sclerosis, Major organ transplant, Coma, Loss of Speech, Stroke, Parkinson’s, Kidney Failure, Alzheimer’s, Severe Bums, Deafness, Coronary Bypass, Blindness, Loss of Limbs, Occupational HIV Injury, Motor Neuron Disease

Some insurers offer a choice between basic and enhanced coverage options (Heart Attack, Cancer, and Stroke). These policies are finding favour particularly with older workers, who are enjoying their prime earning years at the very time that, statistically, they are more prone to serious illnesses such as heart disease, cancer and stroke.

Financially, it can be prudent to insure yourself for such risks if you are the main income earner for your family, if you would suffer a significant setback in earning potential should you become severely ill with a possibly long recovery period, and if you would like to have the peace of mind that your finances would not suffer unduly should you become quite ill.

Personal disclaimer: My wife and I personally have critical illness insurance policies insuring us for 22 major illnesses. This provides us with peace of mind and it is quite reasonable - relatively speaking. I do not sell or receive compensation for the sale of insurance policies.

Financial Planning - Life Insurance

Insurance planning is an important element in most people’s financial plan. Many people need life insurance or other types of insurance for a variety of reasons. Here are a few reasons why someone needs life insurance:

1) Debt – the presence of any level of debt in your financial situation may indicate a need for insurance. Some people like to have enough insurance to pay off all of their debts should they die and other people just have enough to make the payments for a given time providing their survivors with some time to make decisions such as selling a home or car. Generally, it is wise to cover at least the mortgage and car with basic life insurance, especially if you have dependents.

2) Children/dependants – if people depend on you for financial support you need to seriously look at the amount of insurance you need to continue to provide the necessary financial support to them should you die. Review this with a financial planner or insurance professional for an in depth and personalized analysis.

3) Tax and Estate Planning – leaving a legacy to a family member or charity or just paying the final tax bill are also important reasons to consider life insurance in your situation as well. Working closely with an estate planning expert on this type of situation is critical.

There are different types of life insurance for different situations:

1) Term life insurance provides affordable financial protection for a specific period of time that would help your family in the event of your death. Term plans provide a death benefit only and do not include cash values. The premium for term coverage may change periodically, for example, every 10 years. Term life insurance is ideal for the majority of life insurance needs such as providing for dependents or insuring debt because the needs are mostly temporary and term insurance is the most cost effective way to meet this planning need.

2) Permanent life insurance is designed to provide insurance protection for the entire lifetime of the insured person. Many people appreciate this kind of security. If the insured person dies, his or her beneficiaries will receive the tax-free insurance benefit. There are two main types of permanent life insurance:

• Whole Life Insurance is designed to be kept for your entire life provided premiums are paid as specified in a policy. Premiums are fixed for the duration of the policy's existence (your lifetime or as otherwise indicated in your contract). There is a cash value component that grows over the length of the policy and can be withdrawn if you give up (surrender) the policy, or can be borrowed if you take out a policy loan. Cash withdrawals may be subject to taxation.
• A universal life insurance plan combines lifetime protection with a tax-sheltered investment fund. The policy is designed to help your family cope when you're gone, but it can also build you another nest egg for your retirement. Based on individuals’ needs, universal life options can, in some cases, be complex.

As always, you should consult with a professional before making any decisions and get a second opinion before being pressured into doing something you aren't comfortable with or don't understand.