Your question “Which is more important CI or Disability Insurance?”

Both have their place. If you are self-employed disability will only cover your earned income. You can buy up to $2,000,000 with CI.

If you get back problems disability insurance (a good policy) will pay CI will not.
It’s like saying is a car or truck better? It depends on need. If you can afford it the best is both. Since everyone is different there may be other factors in play.

cheers,

Brian

Thanks

What? You should only be buying insurance on things that need to be insured! If you have extra money, buying more (unnecessary) insurance will certainly not give you the best return on your investment. Is there an “insurable need”? If not, do not buy insurance on something!

CI (critical illness insurance) can be used for paying off the mortgage or any other use you feel makes sense. If you can get 8% on your investments and you don’t get a critical illness, like cancer, stroke, heart attack. MS, etc. for 26 years you don’t need it (based on a 40 year old male.. $100,000 tax-free permanent coverage). If you got hit by a bus, the benificeries would get the premiums paid.

The CMHC statement I am not sure of, but I think the banks do not double dip. Best bet is to go to their web site http://www.cmhc-schl.gc.ca/en/index.cfm

regards,

Brian

Generally it is impressed upon by the Insurance agents that CI Insurance is necessary to pay off the mortgage, but CMHC shall cover that.

With so many foreclosures coming up does it imply that the Banks are double dipping, from CMHC as well as from foreclosures, any ideas?

In the Toronto Star (I read while waiting in emergency!) Wait times for (in Ontario) chemo jump 10% for 2008. In other words the average wait time is 73 days! This compares to 67 days in 2007! Dr. Terry Sullivan president and CEO of Cancer Care Ontario recommends waiting no more than 28 days!! Read the rest of the story http://www.thestar.com/article/626083

The bottom line is health care I believe will cost all of us more money if we want better faster help (say in the US). If some said for faster treatment cut us a check for $100,000 US to increase the odds of betting Cancer where does the money come from? A line of credit (like the term guy suggests) RRSPs? Open money?

I think down the line there may be a Health Care Account like the one set up in the US last year. Where a taxpayer can put money aside in a tax sheltered account so he/she can use when the bills come in when they get sick.

Note the TFSA is really like the ROTH IRA in the US. We are about 10 to 15 years behind. http://en.wikipedia.org/wiki/Roth_IRA

Brian

The 8% sounds good but the problem is the time you the money (which could be any time) the market has taken a dive..like 2008 now the returns say over ten or even twenty years might be say 5 or 6%! The best time to own the critical illness insurance policy is the same day you bought and your doctor sends you to get a MRI for the lump on your arm. The return on that would be excellent! But you don’t buy it (the insurance) because you think you are going to be sick the next day you buy it to protect the assets you will have to sell.

Using a line of credit like the term guy talks about is crazy, he is assuming the person will be back to work right away. He does talk about the fact the disability may only pay 60% of the gross income…most people can’t take a 40% pay cut!

As an example, if you are a manager at high stress job and you can’t put in your 60 hour work week (after you get sick) you can bet the company will try to get rid of you with a package, if it makes sense! Remember in this economy lots of people can get laid off at the same time so this could easily happen.

regards,

Brian

Interesting points. I will look into this and see what my work covers.

Just for kicks, I decided to look at the comparison to you made between investing $100/month at 8% over 25 years vs. the premiums.

Instead, what if I borrowed around $15,000 at 6.35% to invest in equities in a TFSA (let’s ignore the $5000 annual limit for now – we’ll imagine my wife and I split it and we do this using this year and next year’s contribution room). If we achieve 8% return we will have over $100,000 tax free after 25 years and our cash outlay would be around the $100/month over 25 years like your CI premium example.

Of course, this latter method would allow us to use the money for anything we want should we be fortunate enough to not need it or could be used for either person rather than only the individual for whom this policy was written.

Criticiall Illness insurance is not of replacement of disability insurance, but can help compliment. Let me give an example. Heart attacks are serious events yet one could be discharged from the hospital in five days and back working within 90 days part time and full time within 180 days. A crticial illness policy would pay a lump sum 30 days after diagnosis a disability policy in many cases would not. After one is working full time the disability benefits would stop.

Cancer is an other example how many you know have had cancer and survived? If the lump sum could pay off the mortgage get faster treatment in the US would that be good? Of course! In the case of cancer go to http://www.cancer.ca/ for lots of information about the amount of cases every year, the financial problems people face etc.

If you are a numbers person getting a heart stroke or cancer is more likely to happen first long before death in many cases five or more years. Which means family finances can be destroyed. The term guy suggests using a line of credit, if you are self employed or employed or even resently unemployed what happens to paying the interest? Do you sell your RRSP’s or open accounts and pay tax to pay the interest?

Another reason to consider getting a criticall illness policy is some policies offer “Best Doctors” http://www.bestdoctors.com/corp/index.html
in a nutshell one can get a second opinion on a diagnosis this cost a lot a money every year if you just want this benefit for your self or family. There is some examples of people (including a friend of mine) who were misdiagnosed featured on a radio ad. Best Doctors helped them.

If you look at premiums,l a 40 year male (as an example) for a $100,000 a permanent coverage would cost about $100 per month…not cheap! But lets say you could get 8% rate of return after 25 years ,you still would not have $100,000 tax free. At 5% after 32 years you would still be short, $100,000 tax free. The odds of something like cancer, heart attack stock happening over a lifetime is very high. Term in my opinion for this product is like renting.

The bottom line is criticial illness is part of risk management like everything no one product solves all problems but to protect assets begin used up in an emergency is important. The key for many people is cash flow.

Does it make sense to spend a percent or two proctect of one’s gross income to protect the other 98%?

regards,

Brian

Except that’s not what agents are selling. Agents like to sell amounts of $100,000 or$250,000. that’s way out of whack with what people actually need – if they even need it at all.

Secondly, this stuff is being sold routinely into places where people don’t have proper disability insurance. Selling someone CI when they don’t have disability insurance with coverage like benefits to age 65 and indexing is, well, not good. But it’s happening. Because it’s easy to sell this stuff to consumers as a feel good lottery. It’s an emotional sale, not a financial sale in most cases.

Never mind the fact that we don’t have to insure everything. Some things are so unlikely that we people don’t care about the risk. Other things – like a potential 25K loss may not be catastrophic enough to decide to insure. Some of us are actually OK with self insuring through savings or lines of credit for something like this. Balance the cost of the insurance against your other options, like a line of credit.

Life insurance? You better have a ton of it for most of us. And the same with disability insurance – most folks I see are way under covered (coverage at work is generally not anywhere near good enough in most cases). Until both of those things are looked after, CI shouldn’t even be being discussed – and maybe not even then.

There is two reinsurance “players” Munich Re and Swiss Re for the the reinsurance on critical illness insurance. Swiss Re has pulled out of the Ci market for lots of reasons, but believe or not not because of the risks, (I have some clients who work at Swiss Re). Since Munich Re now is the only player. you will see very similar wording for all CI contracts out there. My understanding is for permanent CI contracts the payout is very high, hence the reason CI insurance is not cheap.

For Ci insurance they do ask a lot of family history questions but generally it is easy to get. You can also get some gauranteed issued CI insurance as well. My thoughts is to apply and see if the insurance company comes up with an offer.

You can have this set up as a group plan (no questions asked) for amounts of $25,000 and perhaps more.

regards,

Brian

For your question: a healthy male in his 30’s, how would the premium cost for critical illness insurance compare to disability insurance? Would they be much less?

You have to look at what they do for a living. A accountant will pay less for disability insurance than a roofer. But the cost for critical illness insurance will be the same.

Also, if you get sick or hurt unless you have cancer heart attack etc. with ci you may not be covered like your disability policy. On the other hand if you had a heart attack even with a disability policy you may be back to work in four months!

The two insurance policies are really different.

regards,

Brian

In addition, there are no restrictions on “qualifying illnesses” for your own savings. Heck, you could use it on a plumber and a hotel room if the pipes burst in the middle of winter.

If you do qualify and you think you need it, I would get term and save the difference in an emergency account.

Thanks for the series. You may want to address who would NOT qualify for CI in terms of a person’s medical history, genetics etc. CI is NOT an easy type of insurance to get given that I understand a lot of re-insurance companies have opted not to re-insure CI carriers so the underwriting has become quite strict.

As I understand it, DI is really an income test for qualification while CI is a health test and CI insurers are very sensitive to anyone who may even show any signs of future illness to disqualify a person for coverage.

For someone who may not be able to qualify for CI individually, is there a way to obtain it through a group plan? Thanks.