What would happen to your savings if you were diagnosed with a Critical Illness?
Would you have sufficient funds to take 3-6 months off from work, would you have enough money to fund your retirement, or would you have to use your retirement savings while you were recovering?
This is a very common situation amongst Canadians, in the sense that if you became ill, or had a heart attack or were diagnosed and had to be treated for some form of Cancer, how would you fund your recovery?
It’s true that if money were no object, you would spend every last dollar you had to recover and get better.
This generally is how RRSP accounts can get wiped out, when a critical illness strikes.
It is a cycle that will not only affect your savings today, but well into retirement if not properly planned for. If you took $10,000 out of your RRSP today to fund your family’s income while you are recovering, it has a dramatic effect on your retirement income into the future. Not only are you using a fully taxable dollar when you withdraw it from your RRSP, you are also preventing that money to grow through compounding which is necessary to build your wealth for retirement.
So if you are in your 50’s when a critical illness strikes, with every $10,000 you withdraw from your RRSP, you will lose the ability of that money to compound over the 15 years before retirement. So the true value of the $10,000 in retirement is closer to $16,000, even at a modest interest rate of 5% compounded, come retirement time.
So how do you protect your savings from this devastating effect? Simple, protect your RRSP account with Critical Illness Insurance coverage, and here is how it works.
If you normally save $1.00 for your retirement, take out a policy that will cost 10 cents on that dollar, and also add a return of premium rider. This way the Insurance will always protect your income in the event of a Critical Illness, and if you reach retirement without having a critical illness, all the money you have invested in the protection will be returned to you in a Tax Free benefit, that you can then deposit back into your retirement account. That way all your future income can grow without being interrupted by a life threatening illness.
There are three ways to fund your recovery in the event of a Critical Illness.
1. Pay for your recovery with your own money (i.e your RRSP)
2. Borrow someone elses money to fund your recovery (i.e. Line of Credit)
3. Receive Tax Free money from your own CI policy to fund your recovery.
In the 1st option we know what the consequences will be, and in the 2nd option you have to ask yourself would your Bank be willing to lend you more or less money if you were currently off of work?
And in the 3rd option, when it is set up properly, will pay you out Tax Free in the event of a Critical Illness, or return your money back to you Tax Free if you live a happy healthy life up to retirement.
Medical advances are allowing more and more of us to be survivors of heart attacks and cancers, but the question remains. Will we be able to recover financially from those events?
The choice should be an easy one to make, call our office today, and we will show you how to use this coverage to protect your RRSP.