Why You Should Consider Critical Illness Insurance

If I did a straw poll, I’m sure I’d find that the majority of those asked have some form of life insurance. The reasoning behind taking out this cover is usually centered around the desire to provide protection and security to their family and loved ones in the event of their death, which is clearly an admirable objective. But, if I asked the same group of people who of them had critical illness insurance – essentially, a policy that pays out if you become too ill to work – in all likelihood the number would be much smaller.

Why is this? It makes sense on paper that people would want to sustain their level of income in the event that they become disabled or too ill to work, yet some of the most common objections include the price, a preference to save themselves for such an event (often known as being self-insured) or simply a sense of denial that this could ever happen to them.

Critical illness insurance varies from policy to policy but typical conditions that it covers in Canada includes heart attack, stroke and cancer. Unlike other types of insurance that provide income replacement, if you are seriously ill, critical illness insurance provides a lump sum benefit that can be used in any way you choose.

The benefits of critical illness insurance

Whilst taking out any kind of insurance policy comes down to personal choice and one’s own individual circumstances, many independent financial experts recognize the benefits that critical illness insurance can offer. Here are some of them:

  • Whilst saving and self-insuring can seem like an attractive alternative, it simply isn’t an option for many. Even if you are fortunate enough to have the means to save for such an eventuality, you would need to be able to guarantee a solid and consistent return on your investment for it to outweigh the financial benefit of critical illness insurance – some estimates put this at a rate of around 10% return for 20 years.

  • Whilst some employers do offer company disability plans, they typically do not pay out the full amount of your pay cheque on an ongoing basis, which can have the potential to have a serious impact on your personal finances, just when you need such a worry the least. What’s more, one of the major advantages of a critical illness policy is that, if you are able to return to work and therefore begin earning again, you still have the benefit of the lump sum that has been paid out under the policy – offering you an incomparable measure of financial freedom to potentially pay off your mortgage or put your kids through university. Essentially, offering you much more financial freedom.

In short, there are no perfect answers in the area of your personal finances, but if you are looking for an option that has the potential to offer you a real sense of peace of mind to secure the financial future of you and your family, critical illness insurance is certainly an interesting avenue to explore.

When and Why You Should Conduct an Insurance Audit

As our lives grow and change with variable circumstances, new additions, and job transitions, our needs for insurance will also evolve. Additionally, economic fluctuations and external circumstances that influence your insurance policy will need frequent re-evaluation to ensure that you are making the most appropriate and financially favorable decisions. Perhaps you aren’t sure whether you should conduct an insurance audit or not. The following scenarios are usually a good indication that you should thoroughly assess and review your current policy contract: 

  • Bringing new life into your family? A new baby may not only prompt you to adjust your beneficiary information, but it is likely to change or influence your coverage needs.

  • Changing jobs? Probationary periods may not provide the same level of disability or accident insurance.

  • Is your policy nearing the end of its term? Be sure to compare prices for new policies as they can sometimes be more affordable as compared to renewing the current plan.

  • Has your marital status changed? Your insurance policy will likely need updating to reflect such.

The specific type of insurance policy you carry as well as personal details certainly influence coverage and premium prices, so if any of the following factors apply to you, be sure to update your policy accordingly. You might be eligible for a rate reduction. 

  • Changes to your overall risk assessment like smoking cessation, dangerous hobbies, high risk profession etc.

  • If you have experienced improvements to a previously diagnosed health condition.

  • Do your policy’s investment options still fall in line with current market conditions?

  • Have you used your insurance policy as collateral for a loan? Once that loan is paid off, collateral status should be taken off the policy.

Insurance policies generated for business purposes should also be regularly reviewed to make sure the policy still offers adequate coverage to meet the needs of the company and includes the appropriate beneficiary information. With life happening so quickly, it can be easy to forget about keeping insurance policies up to date, however, major changes can have a profound impact on coverage and premiums. Be sure to conduct insurance audits often to ensure your policies are still meeting your needs. 

Contact us to see how we can help. 

How to Make the Best of Inheritance Planning

How to Make the Best of Inheritance Planning

Inheriting an unexpected, or even an anticipated, lump sum can fill you with mixed emotions – if your emotional attachment to the individual who has passed away was strong then you are likely to be grieving and the thought of how to handle your new-found wealth can be overwhelming and confusing but also exciting. One of the best pieces of advice in this situation is to give yourself some time before making any binding financial decisions. The temptation to quickly put the money to so-called ‘good use’ or to rush out and spend it can be strong but you must allow the news to sink in and also take some time to consider your options before you embark on the process of dealing with the inheritance. In the short term, put the money away in a high interest savings account and take time to research and think carefully about your financial goals and objectives and how this inheritance can help you to secure and maximize your financial future in the best way.

Although there is no one-size-fits-all approach to dealing with larger sums of money, here are some useful ideas of where to start.

Reduce your debt burden

If you have significant or high-interest debts, one of the safest options of all is paying this debt down. Not only will you achieve a guaranteed after-tax rate of return of your current interest rate, it can also add to your feeling of financial security and potentially offer you a more consistent financial picture. Debt often carries with it a significant interest rate – particularly on credit cards and overdrafts for example – so in many cases, eliminating this burden should be considered as one of your main priorities.

However, you may like to take careful note of the option below regarding investing the money instead as much depends on the prevailing interest rates and, of course, your appetite for risk, as you may well find an investment option with a potentially higher return more attractive.

Make investments

A particularly effective way of investing an inheritance is to add it to your retirement savings – especially if your nest egg is not looking quite as healthy as it should due to missed savings years for example. Those with lower or less reliable incomes should look upon this option as a great choice in particular.

Be charitable

After considering your own future financial needs, giving some of your wealth away to either charities or to family and friends is a good option to share out some of your inheritance to those who could benefit from it. What’s more, donating to charity can also offer you some tax breaks which may reduce your overall tax burden.

Many individuals see this philanthropic route as offering them the opportunity to do something meaningful and rewarding with their wealth and contributing towards their own sense of moral duty and emotional wellbeing.

Make a spending plan

Of course, you are likely to be keen to spend some of your wealth on yourself and your family, particularly if your financial situation means that you have previously had to be more careful and prudent with money than you would have liked. A great way to do this is to create a spending plan so that you can enjoy the benefits of spending, without it significantly eating into money set aside for your financial planning goals. You could, perhaps, aim to set aside 10% of the inheritance just for yourself and loved ones to enjoy. The proportion will naturally depend on your circumstances but, in principle, it’s a great idea as it allows you to balance sensible saving and investments with some short-term enjoyment of your wealth.

Talk to us, we can help.

BC Budget 2019

BC Finance Minister Carole James delivered the province’s 2019 budget update on February 19, 2019. The budget anticipates a surplus of $274 million for the current year, $287 million for 2020 and $585 million in 2021.

The biggest announcements are:

  • BC Child Opportunity Benefit
  • Interest Free Student Loans

BC Child Opportunity Benefit

The BC Child Opportunity Benefit covers all children under 18 and can be applied for starting in October 2020. (This replaces the Early Childhood Tax Benefit where the benefit ended once a child turned six.)

Starting October 2020, families will receive a refundable tax credit per year up to:

  • $1,600 with one child
  • $2,600 with two children
  • $3,400 with three children

Families with one child earning $97,500 or more and families with two children earning $114,500 or more will receive nothing.

Interest Free Student Loans

The provincial portion of student loans will now be interest-free effective as of February 19, 2019.  The announcement covers both current and existing student loans.

Medical Services Premium

As previously announced in the last budget, effective January 1, 2020, the Medical Services Premium (MSP) will be eliminated. In last year’s budget update, MSP was reduced by 50% effective January 1, 2018.

Public Education System

The public education system will receive $550 million in additional support.

Healthcare

Pharmacare program will be expanded with an additional $42 million to cover more drugs, including those for diabetes, asthma and hypertension.

To learn how these changes will affect you, please don’t hesitate to contact us.