October 2007: by Dale R. Berg

Risk management: your health, your wealth

A major insurance company recently reported that seven out of 10 people surveyed were unaware that Critical Insurance coverage is available. The same study reported that if a critical illness struck one of the family income earners, only 16% were confident that they would have the financial resources to cover the costs of recovery. Even more disturbing is that 43% of the families surveyed said they would likely tap into their RRSPs to fund the recovery.

These statistics create a resounding need for critical illness coverage, as well as the importance for a campaign to create public awareness that this coverage is available.

Dr. Marius Barnard, brother to heart transplant pioneer Dr. Christian Barnard, developed Critical Illness insurance in 1983. Dr. Marius Barnard noticed that because of medical breakthroughs, patients were surviving heart attacks, strokes and cancer. He also discovered that although people survived, their quality of life after recovery declined.

He uncovered a need to support people against the financial consequences of a serious condition, and provide patients with financial assistance to help them manage their changed circumstances. Today many countries around the world offer this coverage; in the UK it is the number one personal insurance issued ahead of life and disability coverage.

Some business applications are currently under utilized in our market place. Buy-sell funding in the event of a shareholder becoming critically ill is an area rarely discussed. Traditional programs for shareholders under a disability buy-out program pay a benefit after a 1-2 year waiting period. Critical illness coverage pays a benefit after 30 days of being diagnosed with a covered condition. There may be a need to buy out the disabled shareholder much sooner than the 1-2 year waiting period to acquire certain decision making capabilities, or provide cash to the shareholder who could use it for medical costs and possible rehabilitation.

A more unfortunate turn of events for a business would be if a sole proprietor became critically ill. If the sole proprietor has some sort of disability coverage then their personal finances may survive, with excellent medical treatment they may survive, but without their knowledge, expertise and stewardship will their company survive? A lump sum of cash to pay business debts, accounts payable and payroll could be the lifeblood that allows the company to have a future.

Another interesting application having merit in many business situations is the establishment of a grouped critical illness arrangement. This employer sponsored plan must insure a minimum of two employees; the company pays for and is able to tax deduct the premiums. The real gem of this program is the insured can receive a lump sum benefit if they become critically ill, tax-free!

How often can a company provide a benefit to an employee or shareholder where that benefit is tax deducted by the company, but does not create a taxable benefit to the employee/shareholder? Usually never. In order to set up such a plan there needs to be proper documentation, and the product needs to be structured in a certain manner, but the advantages could be tremendous.

Alarmingly, one in three men will develop a life threatening cancer: a new case of cancer is diagnosed every four minutes. One in two Canadian heat attack victims are under the age of 65, and 75% of males will live for five years or more after having a heart attack. In the UK there are 100,000 strokes annually and 75% are still alive one year later, (Source: Watthey, Debbie K, 2001).

A Critical Illness contract provides much needed cash during a medical crisis, as well, it covers 16 other diagnosed medical conditions. Borrowing a line from the Capital One commercial where they ask," What's in your wallet?", "What's in your insurance portfolio?"

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About the author
Dale R. Berg, CFP, CLU, ChFC, is a Senior Financial Advisor with Assante Wealth Management. He can be reached at 1-877-837-3377 or 306-665-3377, or click to email Dale Berg.

Disclaimer
Please contact a professional advisor to discuss your particular circumstances prior to acting on the information above. The opinions expressed are those of the author and not necessarily those of Assante Financial Management Ltd.

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