What’s Insurance For?

Think a second before going on.

Most people respond what it is or sometimes what it does. Essentially, insurance is a post-dated cheque conditional on some event occurring. That’s what it is and the delivery of money is what it does.

That is not what it is for.

Life insurance, disability insurance, long-term care insurance, and critical illness insurance, the ones I deal with, are there to allow you or your survivors to continue a chosen and preferred life without the burden of a financial shortfall. Insurance is about minimizing the catastrophic effect on life if an insured event should occur.

People sometimes joke that life insurance should be renamed death insurance. In a way they are right. but miss the key point. Life insurance is for the living. For the survivors continued living in their preferred world. The other forms of insurance are similar. Continued life as you wish.

With disability, critical illness, and long-term care, people can continue without destroying their savings and without minimizing the lifestyle they have come to enjoy.

An example

For example, a professional is disabled so he cannot continue his career. His insurance plan provides him with monthly income until he reaches age 65. It is tied to inflation. he receives it for fifteen years and by then has built up his retirement fund so that retirement is seamless. Without it, the retirement plan as it was at age 50, would have disappeared entirely. Then what?

A key variant, in this case, was a rider on the policy. It is called an “Own Occupation” rider. For some identifiable careers, it overrides the standard definition of disability. “Unable to perform the duties of the regular occupation and not working at another.” It removes the “not working at another” part. In this case, he was able to do other gainful things while still receiving the monthly amount. A neurosurgeon once told me that if he damaged the tip of his index finger enough that the could not hold the instruments properly, he could be a general surgeon but not a neurosurgeon. He decided the difference in income could be replaced by his “own occupation” coverage.

Critical illness insurance

Critical illness insurance provides cash to deal with or adjust to a life-threatening illness that might otherwise deplete savings or force the sale of other assets. People don’t know the price of incidental expenses related to treatment. I know a couple who spent close to $30,000 for travel, parking, meals, and overnight accommodation while one received cancer treatment in Toronto. Government and group healthcare plans don’t cover incidentals. Even tiny policies make a difference. If you must create a retirement fund or buy out the unfortunate, more will be required.

How much time off work would you invest if a child needed care? Children’s critical illness insurance is available and is not prohibitively expensive.

Long Term Care Insurance 

This coverage provides a daily amount to cover the cost of institutional care or home care. As one client commented, “If I need home care, I soon won’t have a home to have it in.”

The bits to take away

People often talk about being insurance poor. It is not the premiums that will make you poor, it is the needing the money and having no coverage when you need it that will make you or someone else poor.

Properly designed coverage provides assurance that you or your family can continue life without major adjustments.

Properly designed insurance allows you to invest your money in ways that are more productive. You won’t require savings in a form that is liquid but provides less income to deal with emergencies. Insurance.allows you to do more because you have it,

Life insurance lets you die neatly. Enough cash allows you to finish or cancel all the things that are in progress. No one has everything done.

Life insurance preserves value. Estate sale implies bargain. Money buys time too.

What’s it for? Insurance is to provide the money to continue life as you have chosen when some catastrophe happens.

Help me, please. Please subscribe. If you have found this article helpful, forward it to others.

I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com

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