We all know someone who has been diagnosed with a terrible illness at some point in their lives. Perhaps you yourself have had to endure such an awful ordeal. We also know that even in such a terrible circumstance, the bills will not stop coming every month.
Let’s consider the unpleasant situation of a woman who is diagnosed with a critical illness at age 54.
Aside from the obvious physical and emotional tolls that a devastating diagnosis such as this would bring, we also know that there will be a financial cost. At age 54, to cover the costs associated with dealing with the illness, this client will have to withdraw $200,000 from her RRSP. After tax (approximately 50%), she will have roughly replaced her $100,000 income.
What effect will this withdrawal have on her financial future?:
- Had the withdrawal not occurred, the value of her RRSP at age 65 would be projected to be $965,234.
- With the withdrawal at age 54 of $200,000 from her RRSP, the projected value of the RRSP at age 65 has dropped to $508,808.
- A staggering $456,425 loss.
- We also need to remember, that this $200,000 withdrawal will be fully taxable (see above) and probably at the highest marginal tax rate, so she really only would have had access to approximately $100,000 after taxes, to help with the critical illness costs.
This entire financial risk can be eliminated with a Critical Illness Insurance policy. In this case, this person could purchase $200,000 of protection with Return of Premium for about $2,000 per year.
Return of Premium (or ROP) simply means that when the policy runs out, if you have not made a claim, you will get all of your money back. It is a wonderful protection.
While $2,000 less will be available for investing each year, the ROP can provide a risk-free lump sum payment in the future (assuming there has been no claim) to partially compensate for the lost investment opportunity.
Critical Illness is terrible for all involved, especially the person who is sick. Their first priority should be to fight the illness and not have to worry about money. A critical illness insurance policy is a wonderful way to protect yourself (or perhaps your adult children) against such an unfortunate situation, and if you also opt for a return of premium, you get all your money back if you don’t use it. That is good planning.
If you would like to discuss getting a critical illness policy for yourself, please reach out to me for a free zoom or phone call here: FREE 15-MINUTES.
I wish you Health and Happiness above all.
With Gratitude,
KBH.
THIS ARTICLE IS PROVIDED AS A GENERAL SOURCE OF INFORMATION ONLY AND SHOULD NOT BE CONSIDERED TO BE PERSONAL INVESTMENT OR LEGAL ADVICE. READERS SHOULD CONSULT WITH THEIR FINANCIAL OR LEGAL ADVISOR TO ENSURE IT IS SUITABLE FOR THEIR CIRCUMSTANCES.