critical illness
DESCRIPTION
Critical IllnessTRANSCRIPT
Critical
Illness
Insurance
Elite
Planning
Group
Critical Illness
Insurance
Peace of mind protection
when you need it the most
Critical
Illness
Insurance
• Few people want to discuss Critical Illness Insurance.
• However, as we all get older it seems that more and more of
our friends and family are forced to deal with the challenges
associated with cancer, heart attack or stroke.
• We have witnessed first-hand the dramatic effects of being
diagnosed with a serious medical condition.
• Over the last few years we seem to be paying out almost one
Critical Illness Insurance claim every 4 months.
• Virtually every claimant has the same story – I never thought
it would happen to me and I am so thankful for the insurance
we put in force.
Critical Illness Insurance
Critical
Illness
Insurance
• The next 15 years is a very important time in your life.
• It may be period of “Growth” or a period of “Transition”.
• In either case, a serious medical condition can dramatically
alter your family’s financial picture.
• While you may prefer to believe that a critical illness is
unlikely to happen to you, most thoughtful people realize that
serious illness or injury does not discriminate.
• There is a 2% chance of death prior to age 65 compared to a
20% chance of suffering a Critical Illness.
• Let’s consider how we can provide “Peace of Mind” insurance
over the next 15 years.
The next 15 years…
Critical
Illness
Insurance
• Provides tax-free cash at the time you need it the most.
• The money can be used in any way you wish.
• It could provide immediate relief for the payment of ongoing
expenses, pay for a temporary replacement or fund
alternative treatment options.
• It is a living benefit paid to you.
• It is not dependant upon your ability to work.
How does it provide “Peace of Mind” ?
Critical
Illness
Insurance
• It is an insurance product.
• Pays a pre-determined lump sum tax-free benefit in the
event you are diagnosed with 1 of 25 covered conditions.
• You choose the lump sum amount at time of purchase.
• You choose the type of plan (term or permanent).
• You choose the “optional” benefits (such as a “Return of
Premium” rider).
• The insurance company chooses to offer it to you.
What is Critical Illness Insurance?
Critical
Illness
Insurance
Stroke Heart Attack
Life Threatening Cancer Alzheimer's
Aortic Surgery Aplastic Anemia
Bacterial Meningitis Blindness
Deafness Kidney Failure
Loss of Speech Coma
Major Organ Failure Loss of Limbs
Multiple Sclerosis Occupational HIV
Parkinson’s Paralysis
Major Organ Transplant Benign Brain Tumour
Heart Valve Replacement Congenital Heart Disease
Severe Burns Loss of Independent Existence
Coronary Artery Bypass Surgery
Covered Conditions
Critical
Illness
Insurance
• The Critical Illness Lump Sum Benefit is paid out once you
are diagnosed with a covered condition and survive a
minimum period of 31 days*
• It is not a death benefit – it is a living benefit
• The waiting period for Occupational HIV, Bacterial
Meningitis and Loss of Independent Existence is 90 days.
The waiting period for Loss of Speech and Multiple
Sclerosis is 180 days (as most of these conditions require
a longer period to diagnose).
• If a full benefit is paid out the policy ends.
When is a claim paid?
Critical
Illness
Insurance
• Yes! Certain medical conditions are very serious but do not
put the patient’s life in danger if diagnosed at an early
stage.
• You would be eligible to receive a benefit equal to 10% of
the lump sum amount (to a maximum of $50,000) if you are
diagnosed with:
• malignant melanoma
• stage 1 prostate cancer
• coronary angioplasty
• ductal carcinoma in situ of the breast.
• The lump sum amount is not reduced if a “Prevention”
benefit is paid.
Is there a “Prevention” benefit?
Critical
Illness
Insurance
• No. A non-smoker male age 45 can provide $100,000 of
protection for the next 10 years at a net cost of $50 a
month.
• We are also able to structure the plan to provide coverage
for the next 15 years for free!
• This would be accomplished by including a “Return of
Premium” feature to the policy.
• If no claim occurs over a 15 year period then all premiums
paid are refunded on a tax-free basis.
Is coverage expensive?
Critical
Illness
Insurance
• Age
• Gender
• Smoker or non-smoker
• The type of policy you purchase (“term” or “permanent”)
• The lump sum amount
• Any “optional” benefits
How are premiums determined?
Critical
Illness
Insurance
Critical Illness Proposal
ABC Inc.
Critical
Illness
Insurance
• Intent is to provide protection of $500,000 for each
executive.
• At claim time the $500,000 Critical Illness benefit is
payable to the insured tax-free.
• The coverage will be structured on a “Level Term to age
100” basis with locked in premiums
• A “return of premium” feature will be added that returns
75% of all premiums paid after 10 years or 100% of all
premiums paid after 15 years if the policy is terminated.
Critical Illness Proposal
Critical
Illness
Insurance
Over the next 10 years
• If a “Full” claim occurs the insured receives $250,000 and the
policy is terminated. There is no refund of premiums.
• If a “Prevention” claim occurs the insured receives $25,000 and
the policy remains in force.
• If we were to use “Term to 100” with “Return of Premium” then
at the end of the 10 years if the policies were terminated the
beneficiary of the “Return of Premium” benefit receives 75% of
the total premiums paid (normally this is the insured).
• If a death occurs the policy is terminated and there is no refund
of premiums.
Critical
Illness
Insurance
Over the next 15 years
• If a “Full” claim occurs the insured receives $250,000 and the
policy is terminated. There is no refund of premiums.
• If a “Prevention” claim occurs the insured receives $25,000 and
the policy remains in force (“Refund of Premium” is not
affected).
• If we were to use “Term to 100” with “Return of Premium” then
at the end of the 15 years if the policies were terminated the
beneficiary of the “Return of Premium” benefit receives 100% of
the total premiums paid (normally this is the insured).
• Hence the net cost over the 15 years is $0 a month.
• If a death occurs the policy is terminated and there is no refund
of premiums.
Critical
Illness
Insurance
• This is for two reasons:
• If a death benefit is desired then the premium for a
“return of premium on death” rider is best used for
more life insurance.
• It prevents the policy from falling under the Life
Insurance Act and hence avoids being ruled a
“deemed disposition”
Why is there no Premium Refund on Death?
Critical
Illness
Insurance
Premium first 15 years
Personally Owned
Client Age
Critical Illness
Tax-Free Benefit
Premium Payer
Premium Type
Annual
Premium
Total Premiums Paid After 15 years
Total Premiums
Refunded to Insured if Policy is
Terminated after 15
years
Joe 45 $250,000 Joe Basic &
ROP $5,882 $88,237 $88,237
Jane 42 $250,000 Jane Basic &
ROP $4,517 $67,762 $67,762
Critical
Illness
Insurance
What about if incorporated?
• We would establish a “Group Accident & Sickness” plan for
all employees or for any class of employees via a board
resolution.
• A “Group” is defined as 2 or more individuals.
• The corporation can then pay and deduct the premiums for
Critical Illness policies provided under this board resolution.
• The “Return of Premium” is a separate premium and it is
recommended this premium be paid for personally (if paid
corporately please seek the opinion of your Accountant).
• The Corporation would be the owners of the policies.
(note CRA has never ruled on the ROP feature of CI)
Critical
Illness
Insurance
Premium first 15 years
Corporately Owned
Client Age
Critical Illness
Tax-Free Benefit
Premium Payer
Premium Type
Annual
Premium
Total Premiums Paid After 15 years
Total Premiums
Refunded to Insured if Policy is
Terminated after 15
years
Joe 45 $250,000 Corp Basic $4,165 $62,475
Joe ROP $1,717 $25,755 $88,230
Jane 42 $250,000 Corp Basic $2,810 $42,150
Jane ROP $1,707 $25,605 $67,755
Critical
Illness
Insurance
Critical Illness Summary
• Over the next 15 years the principle would be insured for $250,000.
• If a full claim occurs the insured receives $250,000 tax free and the
policy ends.
• If the insured passes away during this 15 year period then the policy
ends and no premiums are refunded.
• If a full claim does not occur and the policy is terminated after 15
years then 100% of all premiums paid both Corporately and
Personally are refunded tax free to the executive.
• In this case the net cost of coverage for the 15 year period is
zero.
• As well the Corporation would’ve paid and deducted over
$155,000 in premiums that would now be transferred to the
insured on a tax free basis.
• Note this concept requires 2 insured lives.
Critical
Illness
Insurance
Next Steps
• While deciding upon amounts of coverage and how to
structure the plan, we should approach the Insurance
company to see if they are willing to underwrite the risk.
• We would recommend a carrier that has a full return of
premium after 15 years (some insurers have a minimum 20
year period).
• Applications will require completion and there also may be a
need for a paramedical exam, blood profile and/or urinalysis.
• There is no premium payable until a policy is issued and
accepted.
Critical
Illness
Insurance
Sample Resolution
to establish a Grouped Critical Illness Plan
The Company [XXXX name] has determined it’s in its best interests to provide supplementary
health benefits for certain classes [identify class of employee] of employees. It’s resolved that:
the Company establish a grouped critical illness insurance plan
the employees eligible to be included in this plan are [identify employees,
e.g. senior executives, senior managers, etc.]
the Company apply for individual critical illness insurance policies to insure those employees
for an insurance amount equal to [insert formula, e.g. 2 times annual salary.]
the Company will own and pay the premiums for the individual
critical illness insurance policies purchased under the plan
any benefits payable under the policies will be paid directly to the
insured employee by the insurance company, and
on termination of the plan or termination of the employee’s service, the Company will immediately assign
ownership of any policy that was purchased under the plan insuring that employee, to that insured
employee.
A motion was made by [name], seconded by [name] and after discussion,
the resolution was approved by a majority of the directors of the Company.
Sample Board Resolution