Back-to-Back Annuity

In this post I'm going to discuss a strategy that is not very-well known, or even discussed about in the industry, especially by banks. This, of course, is not a strategy that makes sense for, or to be used by, the majority of clients, however, it does have its niche - the older client population. The concept of Back to Back Annuity, or "Insured Annuity" as it is otherwise known, is not a new one. Advisors have been doing this type of strategy for their clients for years, so why is it that the vast majority of people (and even most advisors) have never heard about this? The reason: Because it's a strategy that involves Insurance products, therefore cannot be offered by banks, or the average advisor with only a Mutual Fund Licence.

Often the dilemma for people who are in the later years of their life is that they want to leave money for their loved ones, or a charity or something else, but don't have the means to leave a lump sum because they need to use their retirement funds to have an income to live their life. Another challenge is that they want to preserve their capital and don't want to risk losing any money, so they don't want to be invested in the markets.

When the low-return and inflexibility of GICs and Bonds is not something that attracts many retirees, what other options do they have? In this type of situation, the often overlooked strategy of the back-to-back annuity or "insured annuity" might fit in nicely.

So, how does it work?

Using this strategy is actually using 2 products together, to take care of 2 or more needs. The first part of the strategy is covering the need of being able to leave a lump sum for your beneficiaries after you pass away, and this involves getting a form of permanent life insurance (usually a Term to 100). Remember, insurance is a privilege, not a right, so you must qualify for it. This might be a challenge if you're in the later years of your life, and maybe had some health challenges over the years. Getting approved for the insurance is always the first step in the process, because if you don't get approved, then the rest of the strategy will not work.

Once approved, the second part of the strategy is fairly simple - using your lump sum of funds to purchase an annuity. In one of my previous posts (Annuities), I already discussed what an annuity is, and what type of annuities there are, so I won't get into too much detail about that here, but essentially the annuity would work as a vehicle to give you regular period cash flow so that you can live and enjoy your life.

So, essentially, you're using 2 of these products "back to back", which is why its called the "back-to-back annuity". Now, by using this strategy, both of your needs have been covered. 1) leaving a lump-sum of funds for your beneficiary, and 2) having a steady cash flow so that you can live and enjoy your life.

To better understand this concept, let's use an example of 2 people - one who just uses a simple GIC offered by the bank, and the other who uses the strategy discussed above. Just so we have a fair comparison, both clients will be the same age, in good health, in the same tax bracket and have the same amount of funds in their retirement savings.

Client #1:

John is a 75 year old non-smoker, and has his $250,000 of retirement savings invested in the bank, in a 5 year locked-in GIC giving him 4% interest. This translates into an annual income of $10,000 from that source. He also has a pension, is getting government assistance, and has some rental income putting the tax rate for his total income from all sources at approximately 31% (his MTR). This means, that he will have to pay approximately $3100 to the government in taxes from his GIC alone. This means he will be left with an after tax income of approximately $6900

His dilemma is that he's not sure if his after-tax income will be sufficient to keep up with inflation and live the type of lifestyle he wants, and might have to start taking extra money from his GIC, which would erode his capital. Also, he wants to leave as much of this money as possible to his kids and grand-kids without them having to pay taxes or other estate fees.

Client #2

John's friend, Jason, is also a 75 year old non-smoker, has $250,000 in his retirement savings, but is dealing with an advisor who has showed him a different option for his situation, which is not offered by the banks. He is also in a 31% MTR, and also wants to make sure that he has enough after-tax income to life a comfortable life. Jason is very adamant about leaving his family the $250,000 when he passes away, but wants to have more after-tax income from his money than just a normal GIC. He wants to make sure the funds go directly to his beneficiaries so that they don't have to pay any fees or taxes on the money.

His advisor recommends doing an "Insured Annuity" or "Back-to-Back Annuity" strategy, which intrigues him very much. His advisor shows him an illustration of how that strategy would work, and shows him how is after-tax income would be significantly greater, and he would still be able to leave the money for his loved ones. The advisor showed him a comparison between using this strategy versus just a GIC strategy that his friend John is using. The comparison is as follows:

	Jason (Client #2)	John (Client #1)
Capital/Single Premium Into Annuity	$250,000	$250,000
Annual Income	$24,378	$10,000
Taxable Amount	$1,024	$10,000
Tax Payable	$317	$3,100
Cash Flow Before Insurance Premium	$24,060	$6,900
Annual Life Insurance Premium	$13,738	$0
Annual Net Cashflow	$10,322	$6,900
Amount Left to Estate at	$250,000	$250,000
Subject to Probate Fees/Taxes?	NO	POSSIBLY

Please see attached for better view (click image):

Using this Strategy, Jason would have 49.60% higher after-tax income than John every year, but will still be able to leave money behind for his family when he passes away. This also means his equivalent rate of return would be approximately 6%. The strategy meets all his needs to live his lifestyle, and at the same time gives him the peace of mind that his family will be taken care of financially when he is no longer here.

This strategy works best for those who are 65+, but that doesn't mean someone who is younger will not benefit from it either. Older clients will receive a larger cashflow, as the insurance company is betting against their mortality, and therefore will offer them higher cashflow for their remaining years. Another thing to note is that it also works best for those who are in a higher tax bracket, as they are the ones who see the biggest difference in after-tax income compared to using the GIC strategy.

By no means should someone be putting all their money into this strategy, but using this strategy as a means to supplement other income is a great way to keep up their standard of living and let them enjoy a nice lifestyle. This is a great way for someone to create their own personal 'pension' if they do not have one, or are not receive enough from their own.

This strategy does not work in all situations, so its always best to sit down with your advisor and crunch all the numbers. Remember, this strategy is using 2 products to achieve the same goal. Usually what will happen is that you will get the annuity from one life insurance company, and the life insurance from a different life insurance company. It's very rare that the same insurance company will have the best rate for both products, so it is key to have an advisor who is fully independent, and can shop the market for you.

I hope you have learned a few things from this post, and if you have any questions about this strategy, or even want to see if this strategy would be good for you, please do not hesitate to contact me!

Disability Insurance Protecion

In one of my previous posts I discussed the concept of Living Benefits, more specifically Critical Illness Protection (CI)- that is, protecting you and your family in the event that you or someone in your family was to get a sickness/disease. I also went through some statistics and indicated how we are actually more likely to get sick/injured by age 65, then we are to die. In this post, I'll discuss the other Living Benefit that is offered in the industry, which is Disability Insurance (DI). I'll also go through some common questions people have and discuss some of the unique benefits of this product.

What is Disability Insurance Protection?

When people are asked "What is your most valuable asset?", they generally respond with "Home" or "Car" or something of cost/dollar value. The real answer actually is, your ability to earn an income - THAT is your most valuable asset. Where Critical Illness Protection will provide you with a lump-sum payment in the event of a sickness, Disability Insurance provides you with a monthly income in the event you are unable to work due to injury/disability. Disability Insurance, essentially, protects the ability of you to earn an income through your own efforts, and can protect your ability to pay bills, eat, have a home, etc...

Do You Need It?

As I said in the Critical Illness post, nobody plans to get sick, its actually the same with Disability - nobody plans to get injured/disabled. Below are some statistics that we all should be aware of and take into consideration when assessing our own needs. DI is especially critical for those who are self-employed or working on a contract basis where they are not receiving benefits from the employer.

Here's a quote from the book "The Wealthy Barber" that might help put things into perspective.

“Disability insurance is the most neglected of all forms of insurance, yet for many people, it’s the most critical insurance need…. A thirty year old has a one in four chance of becoming disabled for one year or more at some point in his or her life…When people are disabled, they don’t just cease to be an asset to their families…they become a liability.”

Here's a chart I got from the SunLife.ca website that will give you a general idea of the what the chances of us being disabled by age 55.

Chances of becoming disabled for 3 months or longer before age 65*

Percentage	58%	54%	50%	48%	40%	30%	23%
Age	25	30	35	40	45	50	55

Source: Sunlife.ca

1 in 3 people, on average, will be disabled for 90 days or longer at least once before age 65.

The average length of a disability that lasts over 90 days is 2.9 years.

Source: Canadalife.com

Think you are already covered?

Most people have some protection through their employer as a group plan or get covered by Workers Compensation, but are these plans really protecting you properly?

Workers Compensation: Only covers work related accidents/injuries and may contain some limitation on length of payments (often the first 5 years or so), the amount of coverage (usually cover only about 60% of the salary) and types of injuries covered. This is only for those who are working on an employer-employee relationship - not for self-employed individuals.

Unemployment Insurance: Only covers for 15 weeks

Group Plans offered through employment: May contain some limitation on length of payments (often the first 5 years or so), the amount of coverage (usually cover only about 60% of the salary) and types of injuries covered. You do not have full control of the plan and once you leave the company you are working for, you are no longer covered, and it can be cancelled by employer. Generally, there might also be several limitations or exclusions from the work sponsored plan (i.e. no 24 hour protection, only covers work-related injuries, etc..).

Canada Pension Plan: Offer limited coverage and can reduce the amount of benefit received from the other sources. Also, the definition for 'disability' is more strict then for having a stand-alone plan.

Benefits and Contract

When you have a stand-alone DI Policy, you will be paying from your pocket with after-tax income and there is no tax deduction, therefore you receive the benefits from the policy tax-free. On the flip side, the benefits you receive from a work-sponsored plan are actually taxable because you are paying with pre-tax income. The contract on a stand-alone policy is between you and the insurance company directly, and in most cases it is 'non-cancellable', which means as long as you are making your premium payment, the insurance company cannot cancel the policy.

Within the contract, there are generally 3 definitions used for disability, and that will determine how long and how much the insurance company has to pay you. Some policies will actually require you to go back to work even if it is not in the same field of work you were doing before or if it is at a reduced salary. The 3 main clauses within a DI policy are:

Any Occupation: Means you are unable to work for any occupation, regardless of what type of duties or income is involved.

Regular Occupation: Means that you are unable to work in any occupation that requires you to do the same duties you would have done in your own occupation, or field of work.

Own Occupation: Means that you are unable to perform the duties of your own occupation, HOWEVER, can still work in another field/occupation and continue to receive benefits.

There are also 2 other benefits that can go along with these clauses and I've actually found a good description from another website:

Level of Benefit

Residual Benefit: A residual benefit is payable if the person is able to work on a limited or reduced basis. For example, an individual with back pain may only be able to tolerate sitting at a desk for 2 hours per day. The level of payout is based on the proportion of lost income relative to the time lost. This provision is essential since most individuals make claims for partial rather than full disability.

Partial Benefit: A partial benefit is also payable if you are working at a reduce level. However, the payout is based on the amount of lost time and duties and there is no requirement to show a loss of income. This is an attractive clause for those who are newly employed and show limited prior earnings (e.g. a new graduate doctor).

(Source: Click Here)

The "Elimination Period" (i.e. Waiting Period) of the policy is generally the amount of time you have to wait for the company to start paying claims. To assess how long your elimination period should be, you should have a general idea of how long you can survive without having an income coming to you from this policy. In order to determine this, you must take into consideration the following:

- Do you have a group plan through work? If so, will it cover you? for how long? how much?

- CPP Benefits - will you qualify? how long will it cover you? how much will it give to you?

- WSIB - will you qualify? how long will it cover you? how much?

- Personal Savings - how much do you have in savings? how long will it last if you were to have no income coming in? is it accessible at moments notice?

Features

Many policies will offer different type of features or 'riders' to the policy to enhance the coverage that you get. Some of them include:

Waiver of Premium: This feature will actually result in the insurance company to take over the premiums that you were paying, while you receive the benefits from the policy itself. Some companies will also refund the premiums that you paid during your elimination period.

Future Increase Option: This rider will allow you to increase our benefit in the future with only proof of income. Different companies will have different rules to how much you can increase your benefit and how often you can increase. This can be important to those who expect to go from one job to a higher paying job later on, or those who expect their salaries to increase significantly over time.

Cost-of-Living Option: This rider actually will keep pace with inflation, so to make sure that the benefits you receive are not eroded by inflation and keeps your purchasing power in tact. Usually the increases will be every 6 to 12 months.

Making A Claim

Just as in CI, you need to be diagnosed by a medical professional who is Licensed in Canada, the same rule applies to DI. Once diagnosed with an injury/disability that will meet the criteria of your clause (any occupation, regular occupation, own occupation), you would submit the required documentation to the insurance company. After it has been approved and the waiting period has been completed, the benefits will start to and can be used in any way necessary.

Protecting yourself in case of illness/injury is very crucial and can be very detrimental to your situation if you are not covered and something were to happen to you. As you can see, there is somewhat of an inverse relationship between the risks of getting a Critical Illness and getting a Disability. Generally, you're more likely to get an injury/disability when your younger, and the percentage decreases gradually as you get older - this is generally because those who are younger usually have more physical activities they are involved in, will work harder labour jobs and will be more likely to get be involved in something like a car/truck accident. On the flip side, there is less likely to get an illness when your younger, however the likelihood gradually increases the older you get. This is why it is very important to have both these products together to properly protect your family in case of any unforeseen circumstances.

Having a product like this can be a great addition to securing your financial future and assuring some sort of protection for you and your family. If you are not sure whether this is something that would be beneficial to you, please consult your financial advisor before making any decisions. I hope you've learned something from this post, and if you would like to get more information on this type of protection and the choices available, please do not hesitate to contact me!

Annuities

In this post I will talk about Annuities, something that many people have heard about, but don't really know how it works. Annuities aren't as popular today as they used to be, because of all the different types of investments we have today, but they can still be used as a key part in someones portfolio.

Annuities are considered an Insurance contract, and therefore can only be offered by Insurance companies - which could be one reason that they are not known or used as often as other products. There are several different types of annuities, and they can have a few different features added to them as well, so I will explain the details of each below. Before I get to that, I will give a brief definition of what an annuity is, in general.

What is an Annuity?

Here's a definition I got from the Manulife website, which I think is simple but gets the point across.

In exchange for a single lump sum investment, an insurer makes guaranteed regular income payments to an investor that contain both interest and a return of principal. Annuity payments can continue for the lifetime(s) of one or two people, or for a chosen period of time.

(Source: Manulife.ca)

Annuity is often used in retirement portfolios, to give the Annuitant a regular and known stream of income. The concept is similar to that of a pension - when you retire, you start to receive a regular income stream, however, it is not always known. With an annuity, you will know exactly how much income you're receiving on a regular basis. You can purchase an annuity with either registered or non-registered funds, and have your tax rate prescribed (where you know exactly how much taxable income you're going to receive every year) or non-prescribed (every year you pay different amount of tax on your income.

First I'll go through the pros and cons of annuities, and then I will go into the main different types of annuities.

Pros

- receive a regular income stream

- income stream is known

- minimizes taxation of income (because it is returned as principal and interest)

- there is no market risk (you continue to receive regular stream of income even if the markets tumble)

- payments can continue to a beneficiary even after death

- can know exactly how much taxes you're paying

- can be indexed for inflation

- can be set up as single or joint

- generally higher returns than other products (i.e. GICs)

Cons

- very little flexibility - once the money is given to the insurance company, usually, you no longer have any access to it

- if you want to add a cashable component to your annuity (where you can take some of your regular principal as a withdrawal), this will reduce your income stream

- adding features (i.e. payments continuing after death, or index inflation) will reduce the amount of income you receive

- income stream is lower for younger clients

- do not take advantage of market gains

As you can see, there are still drawbacks to using this type of product, and it is not seen as something that might fit into every persons portfolio.

Now that you get a general idea of what Annuities are and how they function, I will now go through the main different types of Annuities offered in the industry.

Single Life - This is fairly self-explanatory. The annuity is issued to a one person, and the annuity payments will continue until the annuitant dies, at which point, they will stop.

Single Life with Guarantee - With this, you can set up a guarantee period (usually 20 or 25 years, or up to age 90, whichever comes first), which means, if you die within this guarantee period, the payments will continue to a named beneficiary until the end of the guarantee period. The longer the guarantee period, the less your income stream will be.

Joint-Life - The payments will continue until the death of the surviving spouse. You can add a 'reduction' feature which will reduce the amount of income received by the surviving spouse upon the death of the first spouse (usually reduced to 40% or 50% of current income stream). By adding this feature, you can increase your current income stream until the death of the first spouse.

Joint-Life with Guarantee - Same as above, but can also add a guarantee period (usually 20 or 25 years, or up to age 90, whichever comes first), so the payments can continue to a named beneficiary (or estate) upon death of the second spouse.

Term Certain - This type of annuity will provide you with a guaranteed income stream for a set number of years (to a maximum of 25 years or age 90, whichever comes first). After this period is complete, the payments stop. If you pass away during this period, the payments will continue to a named beneficiary.

As you can see there are several different types of annuities offered, all with certain features and benefits. One or more of these can fit very nicely into a retirement portfolio to provide you with a regular stream of income, which can help you to maintain your current standard of living and lifestyle. That being said, by no means should you put your entire savings into this type of vehicle. This product should make up only a portion of your retirement plan, and should be used together with other strategies/products.

I hope you have learned some good things from this post, and please consult your financial advisor before making any decisions on how this product might fit into your portfolio. If you have any questions or comments, please do not hesitate to contact me!

Index Funds

In this post I'm going to discuss a type of "mutual fund" that is fairly popular with more educated and sophisticated investors. Index funds are something that are being discussed more and more in todays investment world, especially by those who are not very fond of traditional mutual funds. In this post I'll compare index funds with traditional mutual funds, and try to give the main differences between the 2.

What are Index Funds?

Essentially, an Index Fund is just a Mutual Fund that tracks a specific Index, such as the S&P/TSX Composite Index (Toronto Stock Exchange). An index fund will try to emulate the returns of the index as much as possible, by holding the same stocks as the index itself, and holding the same weightings as each of the stocks in the index.

An index fund will invest in the largest, strongest, and the best known companies in the country/region (and sometimes sectors or commodities) they are invested in. This might offer investors some sort of 'security' in their investment, in the sense that investors will feel that larger companies are less likely to get into financial trouble or become bankrupt or the like.

Management Style

Whereas a regular Mutual Fund will have a mutual fund manager who will buy and sell securities and try to beat the index (known as either professional or active management - depending on the type of fund), an Index Fund will take on what is known as 'passive management'. This is because the Index Fund Manager does not have to do much buying/selling, and his/her job is just to mimic the index as best as possible. Therefore, this requires a lot less research; which will also reduce the overall cost of the fund.

Having 'passive management' means generally there will be no advice from advisors as you would get with traditional mutual funds (therefore no trailer fees paid to the advisor -- which keeps their cost lower). This is why generally Index Funds are used by more sophisticated and educated investors.

Many Index Funds will not be able to fully mimic the index because they will have a 'weighted cap'. This means the fund will not be allowed to have more than x% of one company. For example, at one point Nortel made up more than 35% of Toronto's Stock Exchange, but when it crashed, it took the S&P/TSX Composite down with it. So to reduce the market risk, most Index Funds will have a 'cap' on how much % they can have of one company.

Costs

Since the management of an Index Fund requires a lot less in the way of research, buying/selling, management etc..., this will greatly reduce the costs (MERs) associated with the fund. Where a regular mutual fund can range from about 1.5% to 2.5%, an average Index fund can go anywhere between about 0.4% to 1.4% (depending on the company and the index it is following).

Also, Index Funds are generally bought from on online trading platform or a discount brokerage. This means for every transaction (buy or sell), there would be a charge. Depending on how many transactions are done and how much each transaction is for, this could actually negate any savings from the lower MER. In some cases, the fees associated with trading online will be more than an MER on a regular mutual fund, and thus lowering the overall return of the fund, thus

Risk/Returns

Although an Index Fund will hold the strongest, largest and best known companies in the country/region, they still carry risk (as does any other fund). In fact, often, an Index Fund will have more risk than an average Mutual Fund Portfolio. This is because an Index Fund will track only the Index in a specific region, so it will not give as much diversification as many Mutual Fund Portfolios.

Some will say to balance out risk, to just buy several Index Funds from several different Regions/countries, so to reduce the risk, but that availability of Index Funds for other regions is not as much as for regular Mutual Funds. Regular Mutual Fund portfolios generally have the ability to diversify more than an Index Fund Portfolios, so to reduce the risk. Also, as mentioned above, often there will be a small percentage of companies making up a large percentage of the index, and therefore will make up a large percentage of the Index Fund. This will be more risky than most Mutual Funds, who will have more companies with less weighting, so to spread the risk out.

Generally, Index Funds will have higher returns over a longer period of time, as compared to the average Mutual Fund. Having said that, the volatility is still a lot higher than Mutual Fund portfolios. A Mutual Fund manager will try to match, or even beat the index, with using as little risk as possible. So, although the general returns for Index Funds are higher than the average Mutual Fund, this is not considering the risk involved. If we were to look at the "risk-adjusted returns" (the returns calculating the risk being taken) for Index Fund in comparison to average Mutual Funds, we would find the the returns would actually be fairly similar.

As mentioned before, there is no "one-size fits all" investment or strategy for everybody. Index Funds can be a great addition to an investment portfolio, but only if used properly. Please consult your financial advisor before making any decisions on using Index Funds in your portfolio, and also do your own homework.

I hope you have learned something from this post, and please don't hesitate to contact me if you have any questions!

Critical Illness Protection

In this post I will discuss something that, I think, is not discussed nearly enough by advisors and the general public. We've all heard about and have been swamped by ads of Life Insurance, Auto Insurance, Home Insurance etc..., but I don't think we hear enough of something that may be as important (or if not more important) then the above mentioned. The 2 complimenting products to life insurance for a family 'protection plan' are Critical Illness Protection, and Disability Protection (which I will discuss in another post). In this post I will focus on Critical Illness protection and will help answer several questions about it, such as: What is it? Do you need it? How much is needed? What types of coverage are there? etc...

What is Critical Illness Protection?

Critical Illness Insurance is a type of 'Health Insurance' that provides a lump-sum payment if you were to become seriously ill. It is also given the name "Living Benefits", because you don't have to die to receive the payout. It is considered to be a type of an Insurance to protect your lifestyle, and to help you recover from a serious illness.

Although the illnesses that are covered vary from company to company, you can be covered for most (or all) of the following:

• Alzheimer's disease
• Aortic surgery
• Benign brain tumour
• Blindness
• Cancer
• Coma
• Coronary artery bypass surgery
• Deafness
• Heart attack
• Heart valve replacement
• Kidney failure
• Loss of limbs
• Loss of speech
• Major organ transplant
• Major organ failure on waiting list
• Motor neuron disease
• Multiple sclerosis
• Occupational HIV infection
• Paralysis
• Parkinson's disease
• Severe burns
• Stroke

Do You Need It?

Of course, no one plans to get sick, however, if something were to happen to your health unexpectedly, you want to make sure that your financially prepared to take care of the situation at hand.

While healthy lifestyle choices can be your best defence against some health risks, a critical illness such as cancer, stroke or heart disease can strike anyone at any time. Consider the following:

• One in three Canadians will develop a life-threatening cancer⁽¹⁾.
• One in two heart attack victims are under 65 years old⁽²⁾.
• Each year, 50,000 Canadians suffer a stroke. Of all stroke victims, 75% will be left with a disability⁽²⁾.

(http://www.rbcinsurance.com/healthinsurance/critical-illness-insurance.html)

There are many statistics around about different type of illnesses and the chances of getting them, but the bottom line is that you are far more likely to get a critical illness before age 65, then you are to die. Also, due to medical advances, people are living longer and longer, and are more likely to survive a critical illness then ever before.

To determine if Critical Illness protection is needed, and how much is need, you can do some basic calculations. Basically, what you should do is to determine what your financial hardships would be if you were to become seriously ill. Many things need to be taken into consideration, such as:

- income replacement

- hiring a home-care nurse

- hiring a nanny

- business needs

- debt payments

- medical treatments

- travel

etc...

There are many websites that can help you determine the approximate amount of coverage required, but here's one that I found helpful, from Canada life:

http://www.canadalife.com/003/Home/Products/CriticalIllnessInsurance/CriticalIllnessInsuranceCalculator/index.htm

Types of coverage

Most insurance companies will be able to offer Critical Illness insurance, either as a stand-alone policy, or as a rider (addition) to a regular Life Insurance Policy. Many group insurance policies from work will offer some sort of combo of life/disability/critical illness protection, but in order for you to know what is being offered, please carefully read your group plan package.

Although different companies will offer different products, generally the types of coverage offered would be a 10-year term, 20-year term, to age 65, to age 75, and in some cases to age 100 protection. Often, the 10 year and 20 year term policies are renewable (but be aware, the premium rates upon renewal will usually skyrocket!)

Making a Claim

Making a claim is not as difficult as some might think. What you need is a licensed medical physician (in Canada), who specializes in your illness, to diagnose you with that condition or an illness covered in your policy.

Once approved, the insurance company will pay out a lump-sum payment, usually 30 days after the claim has been put through. The great thing about having a lump-sum payment, is that there is no restriction on how the funds can be used. You can go on a vacation, go to another country for an operation, buy a car, etc...

Also note, once the policy has paid out, the policy is now considered to be ceased, and is no longer active. A bonus is that, even if you recover from the illness, you keep all the funds provided to you.

What if there is no claim made?

In some cases, someone will go their entire life (or most of it) without getting any critical illness (and therefore not making any claim). Depending on the insurance company, some will provide you with a 'premium rebate' addition to your policy, which means that if the policy expires, and you have not made a claim, you receive all your premiums paid into the policy back in full. Also, if a person were to die without making a claim, the premiums can also be returned back to the beneficiary designated on the policy. This is one thing that insurance companies use to to peak the interest of clients.

Critical Illness protection can be offered by any Life Insurance Agent/Representative or can be offered by most Life Insurance Companies directly. As mentioned before, it can be an addition to a regular Life Insurance policy, and if combined, will often be cheaper then getting a standalone policy.

If you are not sure whether this is something that would be beneficial to you, please consult your financial advisor before making any decisions. I hope you've learned something from this post, and if you would like to get more information on this type of protection and the choices available, please do not hesitate to contact me.