A few days ago, I explained the split dollar strategy and give an example of this tax strategy showing how critical illness insurance can help you out getting money out of your corporation. However, critical illness insurance is more than a tax saving tools. Actually, several people like the idea of the insurance itself once explained correctly. The problem with insurance (and I have the same reflex), is that we stop listening as soon as we hear this word. No wonder in Québec they started to call insurance rep, financial securities expert 😉
The Critical Illness Insurance Explained
Critical illness insurance is probably the easiest type of insurance to understand. Even better, there is no ambiguity as of to know if you will get your check or not.
When you subscribe to a critical illness insurance contract, there will be a list of about 23 illnesses in the contract. If you ever get a diagnosis of any of these critical illnesses, you receive your check right away. Plain and simple 😀
You can use this money for whatever you want; spend times with your family, get the best health care possible, pay off your debts, etc. Once you get the money (that is tax free like a life insurance policy), you are free to use it as your will.
The good news is that people can now survive several critical illnesses such as cancer and heart attack.
What if I never get sick?
For a small amount added to your insurance premium, you have the possibility to have all the premiums fully reimbursed after 15 years (see the split dollar strategy for more details).
Also, you can pick the option of having your insurance premiums reimbursed upon death as well. So basically, the critical insurance is almost free (we’ll get to this point at the end of the post).
Another great feature that can be offered through critical illness is to get access to Best doctors. This is a company that will take your file and find the best hospital in the world for your specific illness. They will book your flight, car and hotel room along with book your appointment with a doctor in this hospital.
This service is obviously quite expensive but when you just receive your critical illness insurance check, you can then afford it!
An insurance that is almost free?
Well, there is still a cost even if you get all your insurance premiums back. This is the cost of inflation. If you pay $3,000 per year for 20 years, you will receive $60,000 upon cancellation (or death). If you would have invest 3K at 2% (let’s consider the inflation rate low ;-), your amount with inflation protection would have been almost 73K.
Therefore, you can calculate that the real cost of a critical illness in this example is about $650 per year. You can consider that your cost is higher considering that you could have invested this 3K in the market and get 7% per year. Therefore, your cost of opportunity would be 63K (123K – 60K)…
Disclaimer: I’m not an insurance agent and I do not sell any type of insurance, critical illness insurance included. I’m only reporting information on this blog. Please book an appointment with an insurance professional in order to assess your needs.
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