Critical Illness Insurance for Doctors and Return of Premiums

“You need financial independence when you’re ill. Not because you’re going to die, but because you’re going to live,” Dr. Marius Barnard, world renowned heart surgeon who helped develop critical illness insurance. That’s why critical illness insurance for doctors is a smart financial planning strategy.

A popular product today for doctors, dentists, and other professional high income earners is a paid-up permanent critical illness plan. The insurance is for life and is guaranteed to be paid-up after a number of years. Once paid-up there is an option to cancel the plan and get all your money back if no claim is made. Or you make no more payments and have the insurance for the rest of your life.

How does critical illness insurance for doctors work?

Let’s look at an example showing real numbers with critical illness insurance for doctors:

Dr. Barbara Chan, a 50 year old physician incorporated her medical practice back in 2006. During the past ten years, she’s been generating a significant amount of excess cash flow every year and retains a considerable portion of business profits within her corporation. These profits are currently invested in GIC’s, dividend-paying stocks, bonds, preferred and common shares. Every year her company pays tax on the income generated from these corporate investments (interest 50.17%, capital gains 25.08% and dividends 38.33%). She is looking for ways to reduce her corporate tax payable, supplement her retirement income, and more importantly protect her ability to earn an income if diagnosed with a life-threatening illness.

Using corporate dollars to pay the insurance premiums was an attractive opportunity for her with critical illness insurance for doctors. When deciding on how much money to transfer to the insurance plan, Dr. Chan took into consideration: How much money she earned that she was never going to spend (she would re-allocate those saved dollars and slowly move them into the insurance plan). She did not want to sacrifice her current lifestyle in any way and have enough money for a back-up fund.

With the help of her insurance advisor she decided to transfer approximately $80,000/year for 15 years from her corporate account to the insurance plan.

After shopping the insurance market for rates, she found a highly-rated Canadian insurer offering a 2 million permanent plan with an annual payment of $77,900 paid-up in 15 years.

Once the plan was approved the insurance policy was issued.

After 15 years Dr. Chan had a couple of option:

Keep the plan, no more payments, and have the 2 million critical illness insurance for life.

Cancel the plan and get all her money back. She would be paid a total of $1,168,500 tax-free ($77,900 x 15 years) at age 65. This amount could be used to supplement her retirement income if she chose to do so.

Why is critical illness insurance for doctors so important?

A permanent type critical illness insurance plan for Dr. Chan was important since the Ontario Medical Association’s (OMA), critical illness plan only offered coverage up to $250,000 which obviously did not enough to meet her financial needs. On top of that, the OMA plan was a 5 year term product, which meant the insurance premiums would increase every 5 years and coverage would eventually end once Dr. Chan reached 70 years of age. The best part is she had the option to get all her premiums back after 15 years if she never made a claim.

Critical illness insurance was created to help protect your greatest asset—your ability to earn an income. Each company has its own policy features, benefits, covered conditions, definitions and exclusions and understanding the definitions and exclusions is important. The cost for the insurance varies between companies and shopping around for the best product and price makes sense. Contact us to discuss your insurance needs.