CRITICAL ILLNESS--THE RRSP PROTECTOR
I have been very vocal of late on Critical Illness Insurance. The statistics are staggering. It is said that 1 in 3 Canadians will suffer a critical illness in their lifetime. Look at the people in your home or place of work. Which one of you out of every 3 persons could it happen to?
It doesn't just affect the life of the person who's ill; it affects their loved ones as well. I've heard a lot of folks say "Well i have benefits at work so i'm ok." Let's examine that. If you have specific critical Illness Insurance then good. It provides a lump sum if the severity of your illness meets the definitions. If you do have disability coverage at work then that helps as well. Not everyone does, but it is very helpful should such a situation arise. My question is.....Could your family survive on 75%-80% of your takehome pay (not counting bonuses)? If so, then consider yourself one of the more fortunate ones. For most folks, that drop in income would cause a huge crunch and additional worry.
If you have been diagnosed with a critical illness....life threatening cancer, heart attack, stroke etc....is it possible that worrying about finances may not help you in your fight to get well? Working with the 75%-80% of takehome may be possible if nothing else changes. If you are hospitalized, do you know what it costs for parking to have your family visit you regularly. Would they perhaps spend more on food since they may be home less to prepare meals? Would they just pickup or order more food in that instance? Could you need special food that perhaps costs more than what you would normally purchase for your family? Could you need medications and treatments not covered by your benefits? Where will the additional funds come from?
Generally, the savings account goes first (for those who have funds available). Then it's the TFSA's, the Line of Credit, then the credit cards and last but not least the RRSP. Would making these withdrawals add stress to the sick person and the family? How much further could that set your retirement back? You would probably put retirement on the back burner while you fight for your life. I need to survive first. I'll worry about retirement later. I submit it would add great stress to have to go through all that.
What if you could have access to $25000, $50000, $500000? Would that keep your RRSP's in place and avoid the huge taxation of an early withdrawal? Would it minimize or eliminate the need to rack up debt on your Lines of Credits and credit cards? Compare the costs of a premium against a taxable withdrawal or huge interest debt.
It would be nice to have your credit card and Line of Credit companies call you up and say....Dear valued customer, we understand you have a critical illness so you can have this money interest free. You don't even have to make payments until you recover since we know you'll be taking home less than normal. I haven't heard of that happening yet. Would Canada Revenue Agency say that since you're sick, we won't charge you the withdrawal penalties for cashing in your RRSP's....10% for up to $4999, 20% for $5000-$14999 and 30% for $15000 plus. We won't add all that money you take out to your income for the year and tax you on the overall amount. I haven't heard of that either.
If your spouse needs to take extra time off work to help out with taking you to appointmens or taking care of the added load of household and family duties, will their benefit plan cover them (if they have one)? It may not since they aren't the sick party. They may have to work less and bring in even less income as well. What does all that do for a family's stress level?
Critical Illness insurance will not prevent any of the illnesses. It gives you and your family options to deal with your situation and allows you to focus on getting better as opposed to worrying about finances while trying to get better. What if the treatment you need is in another country and not covered by your plan? What would you do to try and save your life? What would you cash in or sell if you didn't have these funds available?
What if you won't recover? It is an unfortunate reality. Could these funds give you the opportunity for a spouse to take time off to spend with you......take that trip that you've always wanted, cross a few things off your bucket list?
OPTIONS---That is what Critical Illness Insurance gives a family. It allows for the bills to be taken care of so that you and your family can focus on recovery. I believe the absence or minimizing of stress would be better for any recovery attempts. Please contact us for further discussion. Let us protect you and your family.
Glenval Griffiths, CHS
Griffiths Insurance and Financial Services