April 4, 2023

The Importance of Critical Illness Insurance in Retirement Planning

Chris Lubell

A comfortable retirement could potentially be derailed by a number of challenges. These include getting sued, experiencing a marriage breakup, and a stock market disaster.  The diagnosis of a major illness that is life-threatening and affects you or your spouse would be another significant barrier.  Even while it may be challenging to protect yourself from some of the risks to retirement security, critical illness insurance greatly reduces the financial catastrophe that could arise from a change in health as we get closer to retirement.

Given that many Canadians' wealth is made up of the equity in their homes and the remaining balance in their retirement plans, having to access money to fight a terrifying sickness could jeopardise their retirement goals.  Imagine having a stroke while you or your spouse are still in your early or approaching years of retirement.   The outlook calls for a protracted recovery, and the expense of care and recuperation is anticipated to be significant. According to statistics, 62,000 Canadians have strokes every year, with over 80% of them surviving but many of them needing continued care.  Since strokes affect Canadians over 60 in 80% of cases, anyone unlucky enough to experience one may find their retirement savings at risk.

According to a recent study by Sun Life, there is a 61.5% chance that by the time they reach the age of 70, at least one spouse will have a major medical condition.  It is fortunate that a product that will provide tax-free cash to help pay the costs connected with the care and recovery from a major illness exists given these odds.  On the other side, accessing retirement plans would result in income tax being applied to the money withdrawn, increasing the financial burden.

Statistics support the idea that while having a critical illness increases your risk of dying, you have a better chance of preserving your retirement savings if you prepare ahead and include critical illness insurance.

Most significant Canadian life insurance providers offer critical illness protection.  It can be acquired with a variety of terms, from permanent plans that offer protection until age 100 to 10-year renewable plans.  Like most insurance policies, the price is determined by the insured's age, therefore the earlier you purchase it, the less it will cost. Despite the lower cost of 10 or 20-year policies, think about how long you will need the coverage.  

A permanent plan or one that provides coverage up to age 75 may be desirable if you want to keep the insurance into your retirement years for the reasons mentioned here, as premiums are locked in at reduced rates.  A Return of Premium rider is available on some policies, which reimburses premiums paid in the event that the contract ends or is terminated without a critical illness claim.

It's always a good idea to save for retirement, and it's crucial to safeguard your savings in the event of a serious sickness.  It might be a good idea to do it now, while you are still healthy and can benefit from reduced premiums.

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