The Advisor's View of Long-Term Care Planning

Critical illness use for executives

Posted by Patrick Bradley | Feb 20, 2015 10:00:00 AM

While talking with my sister the other day, she reminded me that it was the one year anniversary of her husband's heart attack. My brother-in-law, a few years younger than I, had suffered a major heart attack that kept him out of work for a few months. Physically he recovered pretty quickly, but mentally it was hard on him. Ultimately he went back to work before he was really ready. This reminder also got me thinking about my friend and a neighbor with cancer, both in their early 50's. How did their illness affect their employment?  I know that individual critical illness insurance makes a lot of sense, because everyone knows someone who has cancer or has suffered a heart attack or stroke.

Here's another scenario to consider. What would happen to a business if a key member had a serious illness? Suppose three partners work together at their firm, each person pulling in about 30% of the business. If one goes down with cancer, what happens if he/she is out of commission for 6 months? Well, first of all, the firm profits are going to suffer. Not only will there be less business coming in, the firm will be obligated to keep paying the partner.. a double whammy. From the cancer stricken partner’s perspective, he/she may feel pressured to return to work before they are ready to do so. This episode could really throw a wrench into what was a successful business, and it may take all of them months or years to get back on track.

Let’s look at the same scenario, only add in a $250,000 Critical Illness policy for each partner. When the cancer diagnoses was made, the partner received a lump sum benefit of $250,000. This money could be used for anything. Experimental treatments, salary replacement, trip to Aruba, you name it. Also, the partner can recuperate at his/her own pace, with no real or perceived pressure to get back early. The firm will not need to keep paying the partner while he is out, so the potential hit on profits will be much less or may be even negligible. The impact on the business is minimal, and six months later the partner is back to work.

AIG has a very nice piece on this topic; please click below to view it.

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Topics: Critical Illness

Written by Patrick Bradley

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