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The Importance of Critical Illness Insurance in Retirement Planning

General Gary Masur 12 Sep

A good perspective on the risks to your financial well being if faced with a critical illness diagnosis.

The Importance of Critical Illness Insurance in Retirement Planning

There are a number of obstacles that could potentially de-rail a comfortable retirement. These include marriage breakdown, a stock market crash, and being sued. Another huge obstacle would be the diagnosis of a life threatening critical illness affecting you or your spouse. While it might be difficult to insulate yourself against some of the threats to retirement security, Critical Illness insurance goes a long way to mitigate the financial disaster that could result from a change in health as we approach retirement.

Considering that the wealth of many Canadians is comprised of the equity in their homes and the balance of their retirement plans, having to access funds to combat a dreaded illness could put their retirement objectives in jeopardy. Imagine that you are just a few years into or approaching retirement and you or your spouse suffers a stroke. The prognosis is for a long recovery and the cost associated with recovery and care is projected to be substantial. Statistics show that 62,000 Canadians suffer a stroke each year* with over 80% surviving* many of whom would require ongoing care. Since 80% of all strokes happen to Canadians over 60 those unlucky enough could definitely see their retirement funding jeopardized.

Sun Life recently reported that for a 45-year old couple, the risk of at least one spouse having a serious health condition by age 70 is 61.5%. With odds like these it is fortunate that a product exists that will provide tax-free cash to help defray the expenses associated with the care and recovery from a serious illness. Accessing retirement plans on the other hand, would trigger income tax on the funds withdrawn, adding to the financial burden.

While statistics indicate that the chances of having a critical illness are high, they also support the notion that those with the foresight in their planning to include Critical Illness insurance have a greater chance of keeping their retirement funds intact.

Critical Illness insurance is offered by most major Canadian life insurance companies. It can be purchased with different terms, from 10-year renewable to permanent plans providing protection up to age 100. Like most insurance products the cost is based on the age of the insured so the younger you get it the lower the cost will be. While 10 or 20-year plans are appealing based on price, consider how long you will need the coverage for.

If you wish to keep the policy into your retirement years, for the reasons stated here, a permanent plan or one that offers coverage to age 75 may be preferable, as premiums are locked in at lower rates. Some policies offer a Return of Premium rider that refunds premiums paid when the contract expires or is cancelled with no critical illness claim.

Saving for retirement is always a good idea and protecting your savings in the event of a critical illness is essential. It may be wise to consider doing it now, while you are still in good health and can take advantage of lower premiums.