WEALTH Matters — SPRING 2009

Critical illness stop-loss

Canada’s healthcare system has lately been getting some more positive comments compared with the US system. Canada’s spending on healthcare is about 10% of total economic output, compared with 15% in the US, but 100% of Canadians can see a doctor and get most treatment free, while in the US over 15% of people have no medical insurance at all.

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planning assessment report - with our compliments

Interest rates and fixed-income investments

critical illness stop loss

recession recovery

Still, our system has gaps. To control costs, Canada’s healthcare system does not cover all expenses. Drugs are an obvious one, but there are many others: physiotherapy, convalescent hospitals and private nursing care are some other examples. Also, there can be significant waiting times for some diagnostic tests and treatment through the public system.

Employee benefit plans cover some of these costs, and private health insurance is available to cover some of them if you don’t have benefits through your employer. But no plan can make the waiting time any shorter or pay for private diagnosis or treatment outside Canada.

A particularly difficult situation arises in case of a critical illness such as a heart attack, stroke or cancer, Too often we see people needing to use their savings (RRSPs and Open plans) to pay for these costs. If someone is saving 10% of their income each year, and needs to cover one year’s worth of expenses, this would wipe out 10 years of savings, seriously impacting their retirement plans even if they eventually make a full recovery.  Because RRSP withdrawals are taxable, the impact can be very large.

Fortunately there is Critical Illness Insurance (CII). CII pays a lump sum tax-free benefit if you are diagnosed with any of up to 25 illnesses including the most common: heart attack, stroke or cancer. This money can be used to seek private care, pay medical expenses not covered by provincial health insurance, pay for home or vehicle renovations, or just to cover regular living expenses. They key is that it protects you from losing the value of your savings by having to deplete them to cover living expenses or medical costs.

Most people don’t like to pay for insurance – especially since there is a good chance they will never make a claim. That’s why it’s exciting to see new options that will refund 100% of your premiums if you never claim on the policy. This option makes it easier for you to get the coverage you need to protect your assets without resenting paying the premiums – it’s more like a part of your overall savings program.


In the graph above, Scenario C shows the impact of having a $100,000 CII policy which pays 100% return of premiums at age 65. If no claim is made on the policy, Bob’s total savings including the tax-free return of premium would be about $960,000 – that’s just $50,000 less than his total would have been without the insurance. In other words, the insurance cost was only an average of 0.28% of the portfolio value each year.

Each situation is different and Critical Illness Insurance is not always the right fit. There are many different types of life and health insurance to deal with different risks of loss. Here are some examples:

· Life Insurance – Pays a lump sum to pay debts and replace income on the death of the insured.

· Disability Income – Pays a monthly income amount if the insured is no longer able to work.

· Critical Illness – Pays a lump sum if the insured is diagnosed with a covered illness and survives.

· Long Term Care – Pays a monthly income amount if the insured is unable to care for him/herself.

Our complimentary Planning Assessment Report will help identify any risks in your specific situation, and will identify which of these types of insurance would best protect your assets.


Mutual Funds and Segregated funds provided by Fund Companies offered through

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Nurse holding a stethescope.Graph showing the loss of retirement capital due to a critical illness expense of $100,000 during the accumulation years. Also shows how Critical Illness Insurance with a Return of Premium option can protect against this loss whether the policy pays a claim or a return of premium.

The graph shows our hypothetical client Bob’s planned annual $10,000 RRSP savings growing at 6% per year (Scenario A).

Bob will have accumulated over $300,000 by age 50 and expects this will grow to about $1million by age 65.

But a critical illness expense of $100,000 at age 50 will cut his expected savings to only $560,000 by age 65 (Scenario B).



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