Most who are reasonably healthy are thankful for that. There are even several famous quotes such as “your health is your wealth” that speak to the value of having good health.
But what if your health became compromised?
What impact does that have on your wealth, and how can you take measures to ensure that your wealth is not impacted by any future poor health.
Many people, whether you’re young or old, think it’ll never happen to you. You’ll never get sick, or endure an injury so severe that you’re unable to earn an income for months or years. It happens – a lot. In fact, statistics show that 1 in 3 Canadians are likely to become disabled for 90 days or more before age 65, risking not only your income but your overall financial wellbeing including retirement and other savings goals as you’re forced to liquidate assets to supplement your income and additional medical costs during that time.
Sure, you may be thinking that you have a group plan with disability coverage. Did you know that it only covers 2/3 of your income though? Think about how that might affect your household cash flow and consider additional options, including a Critical Illness plan.
Let’s take a look at how impactful a full living benefits plan including disability income protection and critical illness insurance had on the life of a client of mine. (note that names and some personal details have been changed to protect privacy)
Meet Sara…
Sara was in her mid-30’s, a hard-working single mom of two kids under the age of 10 when she was diagnosed with cancer. She was devastated at the diagnosis, thinking she was too young for such a major health problem, and that there was no family history for it to have even been on the radar. She immediately connected with me to share the news and review what this would mean for her finances, as she’d be taking considerable time off work for timely treatment and extended recovery.
I reassured her that her employer-sponsored group plan’s disability coverage would offer enough benefit to cover her basic expenses, and we immediately submitted the claim for her $50,000 critical illness insurance policy to provide her additional tax-free lump sum funds and peace of mind.
We looked at what she was currently contributing to her retirement and education savings plans and suspended those monthly contributions temporarily to ease her cash flow strain.
She was in treatment and recovery for nearly 2 years. When she took a medical leave from her job, she was making a salary of $70,000 (gross), and her disability benefit afforded her a $3,200 monthly income. Her regular monthly expenses after the changes we made came to $3,300. She had some savings, but would be relying on the critical illness insurance amount to top up any expenses and cover additional medical expenses. She was even able to take the kids away to a cottage for some R&R.
When she completed treatment and was cancer-free we talked about what it meant for her to not have financial stress through the most difficult time in her life. She expressed what “a life raft” it was for her.
Let’s look at the numbers:
$140,000 gross: Lost income for 2 years medical leave
$76,800 tax-free: disability income benefit (in this case, employer-sponsored)
$50,000 tax-free: lump sum cash paid at month 1
$20,000 available: unspent funds from her critical illness claim for her to invest in her savings
$0: depletion of her retirement or other savings