Make Critical Illness insurance work for you – get all your money back if you stay healthy
Many people haven’t heard of “critical illness coverage”. This is a unique type of insurance first proposed by a medical doctor. This doctor conducted the world’s first successful heart transplant, and noted that the financial burdens arising from major illnesses were crippling to his patients.
Getting seriously sick is expensive for families: careers often suffer or are cut short, costs for medical attention and assistance suddenly appear, and resources intended for retirement or bequests are reluctantly tapped. The risks are higher than we would like to think; the average 40-year-old non-smoker healthy male has a 26% probability (1 in 4) of being diagnosed with a critical illness before age 65. Thanks to the initiative of the heart surgeon, there is now a specific way to protect yourself against financial risk in the case of a critical illness.
In brief, critical illness insurance coverage will pay you a tax-free lump sum if you are diagnosed with any one of 24 serious conditions, including all the big ones like, heart attack, stroke, and cancer. This money can be used in any way you please. It is often used by people to access specialized medical attention, such as flying to the Mayo clinic. Some people use it to replace income so they can take a few months off work to recover. It can be used however you wish; there are no receipts, reporting, or other requirements. Most appealingly, if you are not hit by one of these 24 conditions, as we all hope, you can elect to get a tax-free refund of all your premiums paid at year 15 or anytime thereafter. If we disregard inflation, the effective cost for this protection is zero if you elect your refund of premiums.
Who is it for?
This strategy works best for people who:
- are between the ages of 25 to 60, in reasonable health, and are insurable
- wish to ensure they have adequate financial resources available, in the event they are diagnosed with a critical illness
- are happy with a “forced savings program” in the likely event that they are never diagnosed with a critical illness
How does it work?
Insurance of any type is usually considered a necessary evil – one hopes they never have to make a claim, but if they don’t make a claim, money appears forfeited. This trade off changes to a “win-win” by utilizing a particular option on the critical illness policy. If you are diagnosed with any of the 24 critical illnesses and survive 30 days, the policy face amount you applied for is paid out to you. If you have no claims, then a full refund is paid to you once 15 years has elapsed, and you close the policy. Both payments are tax-free.
An example?
A 40-year-old accountant realizes that a 26% probability of having a critical illness before age 65 is too high to ignore. He purchases $250,000 of critical illness coverage and goes back to his happy life. He pays $426 per month for this policy. Fate smiles upon him and he stays healthy. When he is 55, he elects to take a refund of all his premiums, $76,680, in a tax free lump sum, and close the contract.