Tax and estate planning leader says greater focus on health and finances hasn’t been enough to overcome barriers to adoption
In some ways, the pandemic has provided a much-needed dose of reality to Canadian consumers: aware of their mortality, many are now more inclined to prepare estate plans and buy life insurance. But even as people are more inclined to prepare for the worst, they may still be overlooking some very dire threats.
“People are buying more life insurance, for sure, as a result of the pandemic. There’s that sensitivity about how an untimely death may affect the family. But they're not necessarily buying critical illness insurance,” said Peter Wouters, director, Tax, Retirement & Estate Planning Services at Empire Life. “There’s heightened awareness of the fragility of life and finances, but it’s not translating into heightened sales.”
As Wouters noted, practical barriers could be holding Canadians back. Many Canadians have been pushed out of the workforce, and many others have walked away from jobs they were no longer happy with. That’s increased the pressure for them to focus on other financial priorities like saving for retirement, homeownership, and rising living costs.
However, some roadblocks are more about perception. Consumers may assume that critical illness insurance is prohibitively expensive, which could be the case if they wait until their old age to do it. But most claims for critical illness insurance, including at Empire Life, come from consumers who are between 40 and 60 years old – years before they retire, and long before the costs outweigh the benefit. Consumers and advisors may also feel the process of getting it is all too complicated and difficult.
The crush of COVID in ICUs across the country has raised the stakes considerably. Many people who have other illnesses aren’t able to get beds; those hoping to get operations through elective surgeries are delayed. By the time they get attention, their conditions can become much more complicated.
“I think people assume that if they get cancer, or suffer a heart attack or stroke, they’ll die and that’s it. But we know that around two thirds of Canadians who get cancer live at least five years after they’re diagnosed. For heart attack and stroke patients, around 90% who make it to the hospital will survive,” Wouters said. “A critical illness may often not kill you. But it's going to dramatically alter your lifestyle at least for awhile, and that could have a severe impact on your finances.” The financial fallout from suffering a stroke is significant, with a 31% drop in earning power. Critical illness insurance can help support you if you need time and money to recover.
To help shine the light on the possible costs of critical illness, Empire Life has been conducting educational webinars that, among other things, walk through different possible scenarios for individuals with and without the proper coverage. In one example, Wouters described two hypothetical men who both get critically ill in their 50s and need $100,000 to get through that period in each case.
Because one chose to buy $250,000 worth of coverage in his 30s, he’s able to use that policy to cover all his expenses and let his entire RRSP keep growing. Meanwhile, the other is forced to draw from his RRSP. Considering the tax he’ll have to pay on the money, he’ll need to take out $180,000 to be able to cover the unexpected $100,000 expense, leaving only a modest amount to help fund retirement.
“I’ve spent the past year coming up with scenarios like that, which we’ve shared through different presentations and materials,” Wouters said. “People will be thinking about their RRSPs again this January and February, so we’re planning to have more of those types of conversations.”
It’s not just individual consumers Empire Life is reaching out to. Many small business owners have already been financially battered by the pandemic, and they have to take care of themselves as well as their people. With that in mind, Wouters suggests that getting critical illness coverage could be in the best interests of independent entrepreneurs in many cases.
Aside from educating consumers, Empire Life has taken other steps to encourage critical illness insurance adoption during the pandemic. The company has raised the limits for no-fluid and non-medical underwriting for up to $250,000 of coverage for people up to age 40, and up to $100,000 for those ages 41-50, for example. And while the average amount of coverage people get is $50,000, Wouters argues the increased headroom can nudge consumers to take on more coverage – and similarly, embolden advisors to recommend more coverage – than they would have before.
“Most CI products in the marketplace are 10-year or 20-year term policies that you renew, and those can provide coverage up to 75 years old. But we offer policies that provide coverage where the premiums are level to age 75 or where you are covered up to age 100, which aren’t overly expensive as long as people buy them young enough,” he added. “And for people who worry about dying before they get to use their policy, a lot of products now offer a return of premium benefit, where people can pay a little bit extra to get all their money back from the company in case that happens.”
And while the pandemic has supercharged most insurers’ efforts to set up digital distribution systems, Empire Life started on that path in 2014. The company’s Fast and Full offering lets consumers get life insurance, critical illness insurance, and investment products on a fully online basis. Since its launch, the company has made over 4,000 enhancements to the program based on feedback it received from clients and advisors. The process is simple to use, minimizes or eliminates errors, and it’s fast, which addresses the feelings advisors and clients have about it all being too complicated and overwhelming.
“Now we're trying to do it end-to-end, including the back office as well as the front office,” Wouters said. “We’ve been able to issue and send out policies where a human being never sees the application, and it’s done very quickly … That's just the new world.”
