November 2011

Is it serious, doctor?

After the first shock of being diagnosed with a critical illness, there is another shock to be faced. And it has to do with your wallet.

There is good news on the health front in Canada: thanks to advances in medical science, people are less and less likely to die after an initial diagnosis of a critical illness, especially cancer. As you can see from the graph below, the chances of surviving cancer have increased significantly in the past decade. And for a heart attack, the statistics are even more encouraging: in cases where the heart has not stopped completely, the chances of a Canadian surviving a heart attack have risen to 90%.

In short, the good news is that we aren’t automatically faced with dying. The bad news? We won’t necessarily be in any shape to make a living.

A new horizon

It wasn’t too long ago that a worker slogged away for many years then, well before retirement or shortly afterward, received a fatal diagnosis and almost invariably succumbed to the disease. These days, that is no longer the case for many health problems, but that doesn’t mean we’re out of the woods. Because it turns out that illness itself has a cost, and that cost can be exorbitant.

For example, let’s look at the latest statistics from the Canadian Breast Cancer Network. According to a study done by that organization, 80% of the victims of breast cancer, along with their family members, have experienced an economic impact, often with long-term financial repercussions. Household income dropped by an average of 10% and almost half of the respondents ended by using up their savings and retirement nest egg. Not to mention those who took on debt (17%) and those who lost their jobs (16%)!

Conclusion: while life insurance was a good way to provide financial security for loved ones when a critical illness typically led to sudden death, this coverage is no longer sufficient on its own.

A three-point solution

The new risk we need to protect ourselves against is that of not being able to generate employment income and manage our financial obligations – which will be even heavier than before given the additional health-related costs – for an extended period of time. And this is no small risk! According to the Council for Disability Awareness, 25% of Americans at age 20 will experience an inability to work at some point in their working life, due to accident or illness.

To cope with this risk, experts are now recommending a three-point strategy.

Wage loss insurance
Also known as disability insurance, this coverage is designed to provide you with a replacement income approximately equal to your usual net income. It allows you to continue paying your ongoing expenses, but not necessarily to cover the additional costs incurred as a result of your illness.

Extended health coverage
If you have never suffered from a critical illness, you may not realize that many medications, treatments and types of specialized care aren’t covered by the government health plans. Extended healthcare coverage can help to defray these major costs without dipping into your savings, let alone your RRSPs.

Critical illness insurance
Finally, the insurance known as “critical illness” coverage pays out a lump sum – from $25,000 to $250,000 or even more – if you are diagnosed with any critical illness included on a predetermined list. This lump sum can be used for anything you wish, notably to obtain the best program of treatment for your illness, regardless of the cost or where in the world it is offered.

It takes planning

A good coverage strategy against health-related financial risks should ideally combine these three components and factor in the risks and needs of the entire household: your own, those of your spouse, and those of anyone you are responsible for (your children and aging parents, for example).

It’s no small task to put this kind of strategy in place, but your financial services professional has the skill and experience to help you do it!