Some Facts and Stats
Everyone aspires to live a long and healthy life, and most of us do what we can to ensure that this is the case; nevertheless, contracting a critical illness, such as cancer, heart attack and stroke can still occur.
Unfortunately, the statistics don’t lie:
Benefits of Critical Illness (C.I.) Insurance
Having C.I. coverage has obvious benefits. If you are diagnosed with one of over 20 different types of insurable C.I., a tax-free lump sum payment can be paid to cover lost wages, ongoing family or business expenses, or additional expense centered around your treatment. The coverage can greatly benefit your loved ones and your business stakeholders, especially if you are the primary income earner or key person to your business. This makes good sense.
Increased Survival Rates
While the rate of occurrence for C.I. can be startling, these days, in part due to improvements in medical care, C.I. survival rates are increasing. For example, the survival rate for cancer is 60%, heart attack 80% and stroke 85%. Because of these increased rates, ensuring that you have proper C.I. coverage is even more important than ever. Why?
The reason is that a person who experiences a C.I. may need one or two years to recover from their illness before they can return to work. Without proper C.I. insurance, most people would not be able to financially sustain themselves during their recovery period. Proper C.I. insurance will allow you to recover from your illness without contending with added financial stress.
Return of Premiums
C.I. coverage can also be tailored to allow for a recovery of all paid premiums for the coverage where the insured doesn’t make a claim. This return of paid premium rider can be added to most C.I. insurance, and can typically begin returning premiums as early as age 65, generally on a tax-free basis. With this added rider, you can have the peace of mind of knowing that coverage is in place when you need it, and that your premiums can be returned if you don’t need it!
Split Dollar C.I. for Business Owners
In theory, two different persons can own two different pieces of C.I. insurance: one can own and pay for the C.I. insurance benefit, and one can own and pay for the Return of Premium feature. While traditionally we would think that the same person must pay both of these elements within C.I. coverage, we can differentiate them. This can be very advantageous for the business owner.
Termed “Split Dollar Critical Illness Insurance,” the company pays for C.I. insurance coverage, and would collect the tax-free lump-sum to handle ongoing salary or business expenses, and the shareholder pays for the Return of Premium Rider and gets all paid premiums for the C.I. insurance returned to them individually if no claim is made on the policy. Split Dollar C.I. can be a tax-efficient way to cover a key person shareholder within a corporate setting.
The Planning Advantage
If you are interested in learning more about available C.I. insurance coverage and the Return of Premium rider, or how a Split Dollar C.I. plan may fit your business circumstances, please feel free to contact MGF Advisory Inc for more information.
Let MGF Advisory Help
Marco Faccone, CPA, CA, CFP has long specialized in the area of corporately held insurance and estate planning, advising and assisting shareholders with succession and wealth accumulation strategies. Marco has worked alongside estate lawyers and tax accountants to offer his clients a professionally tailored and value-added plan. Contact MGF Advisory for more information regarding corporately held insurance and succession planning.
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This post was written by Marco Faccone