The cost of premiums for living benefits insurance is a major roadblock for many younger clients dealing with the high cost of living.doyata/iStockPhoto / Getty Images
From mortgages to dependents to student loans, Canadians under the age of 45 often carry significant financial liabilities. Yet, many are still on the fence on whether they can afford, or even need, additional living benefits insurance.
“I still think there’s a common belief that [a critical illness] ‘won’t happen to me,’” says John Iaconetti, certified financial planner (CFP) and financial advisor with the McClelland Financial Group at Assante Capital Management Ltd. in Markham, Ont.
“They would say, ‘I have good family history,’ or, ‘My parents have been relatively healthy, so I’ll be fine as well,’” he says. “That very well could happen, but at the same time, I’ve seen it go the other way.”
A recent study showed that breast cancer diagnoses are rising among women in their 20s, 30s and 40s, and Canadians are also more likely to be diagnosed with colorectal cancer before age 50 than previous generations were.
According to the Canadian Life and Health Insurance Association Inc., one in three Canadians, on average, will face a disability lasting longer than 90 days at least once before they reach the age of 65.
For younger clients who are uninsured or underinsured, the financial impact of a critical illness or disability can be significant, says Elke Rubach, CFP and president of Rubach Wealth in Toronto.
“When you talk about families, if one of the parents is disabled – particularly the income-earning one – it’s a disaster … because houses need to be sold or investments need to be liquidated,” she says.
While that can involve cancer or a stroke, people can also be unable to work permanently or temporarily because of a head injury, Lyme Disease from a tick bite, or even an infected dental nerve, as one of her clients experienced.
Clients often believe disability coverage provided through employer benefits will be sufficient, Mr. Iaconetti says, but many employer plans have caps that limit the annual income that benefits will cover.
During the initial planning process or annual review, Mr. Iaconetti builds in clients’ employer coverage and goes through an insurance analysis. By running scenarios, he can determine whether there are any gaps that may need to be filled by individual plans.
Those earning more than $100,000 are generally more in need of disability insurance to make up for lost income, he says.
Cost concerns
Cindy Marques, certified financial planner and president of MakeCents in Toronto, says the cost of premiums is a major roadblock for many younger clients who are dealing with the high cost of living.
“They’re feeling the stress of their cash flow being pushed to its limits,” she says. “They want to be practical and prudent about the products they choose to cover their needs without making it hard to live in the meantime.”
One way to meet in the middle, she says, is to suggest critical illness and disability insurance as a cost-effective way to fill in the gap while the client is building their own emergency savings.
In other cases, she says, clients may not realize they can insure their livelihood in addition to assets such as a property or vehicle.
“Normally, they’re very receptive, especially when I frame it in the context of paycheque insurance,” she says. “I’d argue that your most valuable asset is your ability to earn an income, and there are going to be health events that interrupt your ability to do so.”
Ms. Rubach says it’s the advisor’s job to show clients the impact on a financial plan with and without additional living benefits coverage — and ultimately give them the control to make an informed choice.
While younger clients are often shocked at the price, she says, it’s important to explain how eligibility and premium costs can change over time.
“[Insurance is] way cheaper now, assuming it’s available, than it would cost in five, 10 [years],” she says. “Life insurance costs go up and people are very worried about that, but you should [see] how critical illness and disability costs go up, because of the likelihood of [something] happening.”
Product options
While life insurance products often have more flexibility around term choice, critical illness products have fewer options, Ms. Marques says.
For millennial and younger clients who may have cash-flow concerns, Ms. Marques says a Term 20 critical illness policy can be a viable option at an accessible price.
For clients with children, she says, such a policy covers the most financially vulnerable period and gives clients time to create their own financial cushion.
Ms. Marques also mentions the merits of adding a “return of premium rider” if available – an additional benefit in which, if a client doesn’t make a claim, their premiums are refunded at the end of the term.
For disability insurance policies, Mr. Iaconetti recommends younger clients consider adding a cost-of-living adjustment, which can help a long-term disability benefit keep up with inflation.