Portfolio Confidential
Real world confidential portfolio discussions:
I am a 59-year-old woman, self-employed as a consultant, married with no kids and in good health. A close friend of mine recently suggested that I should look into long-term disability insurance (LTD) and/or critical illness insurance. “You never know what life has in store.” Do you have any ideas as to which type of insurance would be better in my situation and how much this would cost?
Insurance questions always make my eyes glaze over so I asked a client of mine who has had LTD issues for an expert in the field. He raved about David Louis at Opolsky Louis Insurance in Toronto: “David is a prince of a gentleman. When I had a claim, the broker who had sold me the policy and was making a commission on my yearly renewal fee refused to help. I asked David to jump in. He was able to run it up the tree at the insurance company and it was sorted out in no time. David has since arranged an LTD policy for all of our company staff and he now deals with all my life insurance.”
David and I had a Zoom meeting to discuss the various options and I have to say for the first time ever someone made insurance interesting! Here is his advice for our reader:
Disability insurance does not make any financial sense based on the age and occupation of this reader. Disability insurance is designed to replace lost employment income as a result of a sickness or accident. Age is a huge factor in the calculation.
There are two viable options that do make sense in terms of estate preservation (although quite expensive): Long-Term Care and Critical Illness Insurance. Long-Term Care insurance covers you when you can no longer do two or more activities of daily living. Critical Illness Insurance covers you in the event of a heart attack, cancer, stroke, Alzheimer’s, etc. In terms of plan structure there are almost endless permutations with regards to amounts of coverage, terms, etc. Here are some examples to give you an idea of cost and availability.
Important information to note:
One in two Canadians are expected to develop cancer in their lifetime (Canadian Cancer Society).
The average cost of oral cancer medication is $6,000 monthly – not normally covered by provincial insurance (Canadian Cancer Survivor Network).
One in three stroke victims are under age 65 (Blue Cross).
One in two heart attack victims are under 65 (Blue Cross).
80% of Canadians suffering a heart attack will survive (Heart and Stroke Foundation).
Long-Term Care (pays a weekly benefit)
Long-Term Care insurance pays you a weekly benefit to assist with your medical needs in cases when chronic, long-term illness prevents you from being able to maintain your quality of life. It provides an income-style benefit for a dependent person who has functional limitations due to deteriorated mental ability (cognitive impairment) or inability to perform activities of daily living.
Females rates are significantly higher than males. The rate below is for females. Based on $1,500 of weekly lifetime coverage (premiums are not guaranteed for life):
Total monthly premium $640.86
Critical Illness Insurance (CI) (pays a lump sum benefit)
CI is designed to help you with the unexpected. The benefit has no direct relationship at all to the expenses of the qualifying illness. It pays a scheduled lump sum at the first diagnosis of a variety of expensive health conditions that often occur, such as a heart attack, cancer, or stroke. The payout is a lump sum. On this product women pay slightly less. These premiums are guaranteed for the term of the contract:
- $250,000 CI coverage - $520.64 monthly
- expires at age 75
- $250,000 CI coverage - $724.04 monthly
- to age 100
- $500,000 CI coverage - $985.94 monthly
- expires at age 75
- $500,000 CI coverage - $1,406.24 monthly
- to age 100
There is an interesting option offered by one insurer:
If you purchase a $25,000 Critical Illness plan, you have the option to convert the plan at anytime between the ages of 55 and 65 to a $3,300 monthly benefit Long-Term Care policy with no proof of good health. By giving up your $25,000 CI plan you are replacing it with a $3,300 monthly lifetime long-term care benefit. The cost of the $25,000 Critical Illness plan is around $70 monthly for a female nonsmoker and $90 monthly for a male nonsmoker.
Clients are continually asking what they should own and why.
Everyone has a different set of circumstances and based on factors such as health and financial situation, personalized recommendations would be made. Such as:
If someone has significant debt, the decision is simple: insurance should cover the debt in the form of critical illness (and/or life insurance). However, if there is no debt to speak of, the decisions are more abstract and are more about asset protection than risk. A couple of examples: if someone suffers a health issue that requires a high cost treatment in the USA that is unavailable in Canada—the costs could be in excess of $100,000; and if they require a full-time caregiver or are admitted to a long-term care facility, the costs could be in excess of $6,000 monthly.
Both of these two very scary scenarios could be addressed by insurance.
We are a retired couple living in Canada but spending more and more of our time in Florida. We worry about movements in the exchange rate because we have a significant need for U.S. dollars for our lifestyle requirements. What do you recommend?
As this will be an ongoing issue, consider opening a bank account in the U.S. and funding it on a regular basis by converting from Canadian to U.S. dollars. Rather than doing the conversion all at once, take a disciplined approach and convert on a pre-determined date every month or every quarter. Don’t try and guess which way the exchange rate will move. This disciplined strategy will allow you to average in at different rates thereby having a smoothing effect over time.
My wife and I are in our mid-30s and recently started a new life in California. We sold our home in Toronto and the proceeds are in Canadian dollars. We don’t know yet what this money will be used for (a home, an investment portfolio, travel?), what do you suggest we do with the cash?
In this case it makes sense to partially hedge your bets and convert half of the Canadian proceeds into U.S. dollars right away. This way you are free to take some time to make decisions as to where you want to invest and what you want to invest in. Meanwhile, you will be partly diversified in terms of currency exposure. This type of hedge doesn’t involve a complicated product—it is quite simply about “doing half” now instead of trying to second guess the currency market. From there, invest the money in short-term investment vehicles until you are clear as to your next steps.
Do you have questions about your own investment portfolio? I have recently set up The Rich Thinking® Financial Advice Hotline. This will be a win/win: you get a free 30-minute confidential Zoom chat offering an independent, unbiased perspective on your financial situation with no sales pitch! In exchange, I get to use the anonymized data that will come from these conversations to make my Rich Thinking research even better. Email me to book your Zoom discussion: barbara@barbarastewart.ca