Whether you realize it or not, you are practising risk management when you purchase any insurance. You are transferring the financial risk to you and your family of not being able to work due to a disability or illness and/or the costs for medical treatment to an insurance company.
How do Disability Critical Illness insurance and Personal Medical/Dental Plans differ in the protection they offer you and which one(s) are best for your situation?
Let’s look at the primary risks that each type covers and their relative costs. I suspect you will be surprised at the amount of risk you can cover for relatively small premiums. I am using a 35-year-old male as a bench mark for the costs but we welcome the opportunity to quote your situation.
Disability Insurance
Disability Insurance will pay you a tax free monthly income starting at an agreed time after you suffer the disability-usually 30,60 or 90 days after the disability. Generally, Disability Insurance covers anything that prevents you from doing your normal duties from two years to age 65 depending on the policy you purchase. It is the most comprehensive and offers you the best protection. I like to ask, do you want a job that pays $60,000 per annum but if you are unable to work it pays nothing or one that pays between $58,000 and $59,000 per annum but will continue to pay you to age 65 if you can do the duties of your regular occupation.
You can also choose to add a rider. Two that we recommend are one that increases your benefit by the cost-of-living increases to a maximum after you are on claim and another that pays if you are only able to do part of your job as you return to work. These are details to review when looking at what policy to purchase within your budget.
How much disability insurance should you have? Generally, you can cover about 68% of your pretax income but it is tax free so it is close to your pre-tax income. Someone earning $5000 per month could get $3,400 per month of coverage but it is tax free. You are protecting your most important asset-your income.
While it might seem expensive, if one looks at the cost based on monthly income, one needs to project the benefit through to age 65 so that a 35-year-old going on a benefit of $3,400 per month for 30 years would receive a total of about $1.2 million.
Typically, a 35-year-old healthy male nonsmoking business owner could purchase $3,400 per month after a 90 day wait for about $75 per month-likely less than you might expect. With cost of living and a few other riders it could be as much as $100 per month-to protect an income of $60,000 before tax. The premiums are guaranteed not to change through to age 65.
MONEY SAVING TIP: The longer you wait the cheaper it is so if you can have three months of expenses or even a line of credit to cover the first three months, a 90-day wait is your best value.
Critical Illness Insurance
Critical Illness Insurance pays you a lump sum if you get a covered critical illness and survive for at least 30 days. Price depends on the length of coverage (10 years to age 100), the number of covered illnesses (3 to 26), extras you add to the policy (e.g., return of premiums if you do not claim) and the amount of coverage.
There are basically two types: Basic and Enhanced. Basic policies cover the five or so illnesses that represent about 85% of the claims while enhanced policies cover up to 26 illnesses can cost about 15% more. In addition, some basic policies are simplified issue so all that is required to get the policy that you can answer no to a series of questions about your health. There is no requirement for a nurse and it is issued if you answer “no” to all the questions. All simplified issue policies are basic covering only the major 5 risks.
The risk of a male between the ages of 35 and 55 of having a Critical Illness before the age of 75 is over 50% based on a 2002 study by Munich Re a major re-insurer. The similar statistics for a woman are over 40%. You can see why premiums will likely go up as claims history is generated. This is a relatively new product.
One might think that if I have either disability or critical illness insurance, then that should be sufficient but it is not the case. Only about 25% of the Disability claims are also for covered critical illnesses-they are for mental disorders like depression, back problems and neurological issues.
How much should you have? I like to think of having enough so that you and your spouse do not need to work for a year. Generally, within the year, if you get a critical illness, you have recovered or not. My experience is that when someone gets a critical illness, they are limited in their ability to work and the spouse is also limited caring for their loved one including transportation to and from treatments. The cost of transportation and parking can be significant. If you live in a rural area you should consider increasing it by at least $25,000 to cover extra travel and accommodation.
So what would it cost? For $50,000 simplified issue the 35-year-old male nonsmoker would only pay $17.50 per month ($25,000 would only be $8.75 per month) and this rate would increase every five years. For an individual policy for $50,000 it would $21.50 per month but this is a ten-year guaranteed rate and the increases every 10 years are guaranteed in the policy.
In addition, it covers 25 illnesses instead of the simplified issue which covers 5 illnesses-however these five represent about 85% of claims. To lock in the premiums for and individual policy for 20 years it would be $30 per month and to age 65 it would only be $35 per month. Seriously look at the $35 per month.
MONEY SAVING TIP: If you are looking for say $25,000, then consider the simplified issue where you just fill out an application and it is issued provided that you have not had a critical illness in the past ten years. For larger amounts, you shout get your own individual policy provided you are in good health with good family history-parents and siblings did not have a critical illness prior to the age of 65. If your parents or siblings have had a critical illness prior to the age of 65, then the simplified issue is the one to use.
Medical Dental Plans
Why would we include this discussion here? It is part of your risk management plan for sickness and disabilities but it differs in that it reimburses you or pays in full or in part for extended health benefits such as vision care, preferred hospital accommodation or registered specialists and therapists and prescriptions up to a limit not covered by provincial health plans. For those in provinces with a provincial prescription plan, the deductibles on prescription drugs are huge before a provincial plan even starts paying anything. If you have dental coverage, it will also cover some of these costs. You are substituting a monthly premium payment for the risk of having significant bills that will cause financial stress.
The costs for individual medical dental plans depend on what coverage you want for your family, age, province you live in and the size of your family. However, a good medical plan including $10,000 in prescriptions for a family including a 35-year-old male and a 35-year-old female with two children would be between $64 and $74 depending on which province you lived in. This does not include dental-see money saving tip below. Adding dental would essentially double the cost.
Our Medical Dental Plan experts have applied the same diligence as our life associates in finding outstanding providers and would welcome an opportunity to help you review your risks and suggest a plan that would fit in your budget. We broker these plans – let us help you get the best value available for your situation.
MONEY SAVING TIP: If you have a limited budget, first get your health insurance before you add the dental insurance as some dentists will offer a 10% cash discount if you pay when you get the treatment and you can somewhat control dental costs where you cannot control health costs-you do not know what will happen to your health. Get the health coverage while you are healthy and can still purchase it.
MONEY SAVING TIP: If you are leaving a group medical plan we have a plan that will continue to pay for prescription drugs you are currently taking if you sign up within 60 days of ending your previous plan.
MONEY SAVING TIP: If you are part of an employee group of six or more, we have an amazing plan that includes prescription drugs and even people currently taking prescription drugs are included. This will not last long. We also have excellent plans for employee groups of two or more.
