As a financial planner I’ve been noticing a big gap in the often overlooked area of Living Benefits. Most people think about their RRSPs, their mortgages, even life insurance. But too many people are forgetting about protecting themselves, their families, and their finances if they should get sick. I’d be willing to bet that everyone knows someone, has heard of someone, or is someone, who has been affected by a serious life threatening illness. Cancer, heart attack, stroke, Alzheimer’s, MS, and the list goes on. Just last month I lost a close friend who courageously battled a brain tumour for years. Another friend is in remission from cancer, my mom has had a stroke, and my dad was diagnosed with Alzheimer’s. We all know someone, but many of us think that it won’t happen to us.  I hope it never happens to you….but what if it does? Aside from the emotional impact, how will it affect your finances? Will you need to start going into your long term retirement savings if you can’t work?  How will that affect your retirement? How will the financial burden affect your stress level? Can you afford to seek treatment outside of Canada? Or alternative treatment in Canada which is not covered by Medicare? What if it’s a long-term illness, and you need continued medical assistance?

I understand that no one really wants to think about this happening to them, but if it does, it’s far better to have planned for it, than not. Then it becomes one less thing to worry about. Various types of Living Benefit Protection exist for this very reason. And many financial planners overlook it, because it’s a very specific area of expertise; that many advisors are not comfortable with. I’ll give you an overview of the two main types, which are largely, but not solely, age based.

Critical Illness Protection: 

Critical Illness insurance provides a lump sum benefit that helps you respond to a critical illness in your own way. It’s generally appropriate for all ages up to 65 years old. One of my favourite options on these plans is that you can get all your premiums back at a given point, if you haven’t suffered any claimable illnesses. This, in my opinion, takes most of the risk away. You buy this protection hoping that you’ll never get sick, but if you do you’re covered. If you’re lucky, and don’t get sick, you get all your money back. It makes a lot sense to me.

I have this type of insurance, as do many of my clients and friends. Unfortunately some of those people have also made claims. In the personal cases that I know of, thankfully, all of the individuals survived their illnesses and are doing well today. I know for a fact that receiving a lump sum of money upon their diagnoses relieved an enormous financial burden. One of them is a young father with children, whose wife is a stay at home mom. Another was a single friend who had to stop working for months, and wouldn’t have had enough savings to support herself through her treatment.

Long-Term Care Protection:

Long-term care services address the health, social and personal care needs of individuals who have lost the ability to care for themselves. While a certain degree of public support is available, government programs are not comprehensive and long term care services can be costly. The cost to meet these needs, will increase with age with the average Canadian experiencing 9 to 14 of the final years of their life in diminished health.*

Long term care insurance helps to pay for care services that other plans don’t provide, bridging the gap between what is provided and the extra care or services you might want to access. Meaning that you have more choices around the kind of care and amount of care you’ll receive. It will help to ensure that your savings and investments can be preserved.  Like the Critical Illness Protection, you may be able to have your premiums returned to your estate, if you die, and have not used the protection. It’s generally looked at for people in the 45-65 year age range.

You wouldn’t buy a car or home without insurance; and this is no different. Everyone’s situation is different, so it’s important to evaluate your particular concerns with an advisor who understands your needs, financial situation, and the products available that would best suit those needs. This type of protection should be considered as part of an overall financial plan, and not as an independent/stand-alone component.

* Source: Statistics Canada, 2012

Lynn MacNeil, F.PL. is a licensed Financial Planner with Investors Group Financial Services Inc. in Montreal, with 20 years experience working with retirees & pre-retirees. This column is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide legal advice. For a private financial consultation, or more information on this topic or on any other investment or financial matter, please contact Lynn MacNeil at (514) 693-3384 or [email protected]

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