Insights

HANGING BY THE PROVERBIAL THREAD 
Warning: contains statements of reality that may be shocking for some readers

A “Go Fund Me” page is not going to save you from yourself.  A big lottery win most likely will not miraculously appear. Family members & neighbours will not randomly decide to collect $ to pay your bills.

Whew!  We had to get that out of the way. Sorry to burst any bubbles but it had to be done. The reality is that the middle class are walking a financial tightrope.  Previously, we covered insolvency and bankruptcy, and now we focus on something even more intimate and close to home - medical challenges.

Critical illnesses & disability - they don’t discriminate
Medical advances have dramatically improved the survival rates of people who suffer critical illnesses such as cancer, stroke and heart disease.  Recovery may come with a significant financial cost that impacts both you and those close to you. Realistically, if you are part of the middle class you probably have the most to lose. 

Critical illnesses and disability will affect you most because the middle class usually has the most amount of debt with the least amount of liquid wealth at their disposal. Servicing this debt can become very tricky during a prolonged illness or disability. Anyone who has ever experienced chronic back pain can attest to its ability to send you on and off disability benefits, and also its ability to disrupt your entire life and productivity.

Where middle class are most vulnerable
A child’s serious illness can represent a significant strain on family finances. When a child gets sick with a critical illness there are sacrifices to be made.  Rarely are there employee benefits lump sum payments that kick in when a child gets sick with a critical illness.  If both parents are working full time, who is going to look after the child? Decision time: one of the parents will likely stop working or reduce hours. That one modification could cost the family tens of thousands of dollars every year in lost salary, employee benefits, and interest from savings and investments.

Now that the family is down one salary/income and they have to care for a sick child.  What comes next? 

  1. Drawing down on the line of credit and paying heavy interest charges to replace the lost income is one option.
  2. Another is to cash in savings, RRSPs, and investments to generate income.
  3. The third option is to sell the family home and rent or downsize to reduce family expenses.


Each option however is filled with many onerous possibilities. The family may be selling at a loss depending on market conditions at the time.  They may create an increased tax bill from liquidating non-registered investments and RRSPs (assuming there are savings and investments to sell). If not, this reduction in family income may lead to insolvency and bankruptcy proceedings; and unfortunately this additional stress often can lead to separation and divorce.

The Parents
Experience has taught us that most employees and executives have no idea what their (employer) group benefit plans cover, and often don’t even know where to locate their benefit booklets or online links to review. Employee benefits are only as good as the definitions and limits to those benefits.

On the topic of disability many don’t understand the difference between definitions of

  • “any occupation”
  • “regular occupation”
  • “own occupation”
  • “total disability” vs. “partial disability”

even though these are key determinants around IF or WHEN you receive the benefit; for HOW LONG you will continue to receive; and the all-important, HOW MUCH you will receive. These are very important factors to consider when your income is responsible for paying the family mortgage(s), car payment(s) and living expenses.

In some cases we have seen an executive making six figures plus ($8300+/mth) think they were (adequately) covered by their employee benefits plan. Upon review, we saw that the maximum benefit on the plan was $3000/monthly; and it was taxable income because the employer had paid the premiums.  A quick “group top-up” personal plan was implemented, and a potential crisis was avoided. Ignorance would not have been bliss but a lot of serious financial agony if this oversight had not been corrected.

Another common misconception is that disability and critical illness are one and the same. On the contrary, they are very different. Disability insurance usually provides a monthly payment benefit and requires regular periodic proof of an ongoing disability to continue receiving a benefit. Critical illness insurance provides a lump sum payment upon diagnosis of any one of 25 (specified) critical illnesses.

According to the Centers for Disease Control and Prevention, 1/5 of Americans have a disability. The most common functional disability type is a mobility limitation – defined as serious difficulty walking or climbing stairs (reported by 1/8 adults), followed by disability in thinking and/or memory, independent living, vision, and self-care.

In Canada, one out of seven, almost 14% of Canadians aged 15 years or older (aprox. 3.8M individuals), reported having a disability that limited their daily activities (2012 Canadian Survey on Disability). Of those, 32% were classified as having a mild disability; 20%, a moderate disability; 23%, a severe disability; and 26%, a very severe disability. In North America we have seen rising incidences of cancers, heart attacks, strokes and other critical illnesses.  Wealth has no effect on keeping these illnesses away.

The middle class are walking a financial tightrope; walking on the wild side with medical “predators” lurking nearby. Illnesses and subsequent disability do not discriminate. There are a couple coping mechanisms.

Option 1:  Ignore the risk and hope for the best; react when there is a problem.  Not advisable. Please remember that contrary to popular news, lottery wins, “Go Fund Me” pages, and community donations are neither reliable nor viable options.  Yes we had to burst these bubbles again…

Option 2:  Proact. Retain a certified financial planner knowledgeable in insurance solutions. Review all benefits and put a financial plan in place to minimize the risks identified.

Government and corporate benefits cannot be relied upon as they may change.  Personal planning is very necessary to help members of the middle class minimize the risk of falling off the financial tightrope. The last things we need are financial stresses when a family member is battling a critical illness or disability.