A study shows that the financial impact of a critical illness can be devastating, not only for the victim but for the entire household as well. And the repercussions can last a long time.

We’ve always suspected it, and now it’s confirmed: in a study published in 2016, Statistics Canada revealed that even if you never experience a critical illness yourself, you could still suffer from the related financial consequences.

How is that possible?

chart1

As we can see, when someone develops cancer, their household income plummets. Even five years later, household income is still far below its initial level.

This is because a critical illness affects the incomes of both the person who is sick and the spouse: the former will usually take an extended leave of absence, but the latter is also likely to miss work in order to be with their partner. Note, too, that when the husband gets cancer, the couple’s income drops even more sharply than when the wife becomes ill.

Plans up in the air

Although we have a universal health care system, it does not cover all of the expenses associated with an illness. Thus, along with the loss of income, there may be expenses for non-eligible drugs or the services of complementary health practitioners such as a physiotherapist, massage therapist, nutritionist, etc. A certain financial outlay may also be required to make necessary changes to the living space or for home care services during convalescence.

According to another study, cancer can entail losses of around $19,000 per year for a couple. This kind of money means that a number of financial plans may be threatened, especially saving for retirement and for children’s education.

Where to find the money

So, how to make ends meet? Here is an overview of the main sources of income a couple can turn to in this kind of situation.

  • Employment Insurance Special Benefits
    This government program provides 55% of earnings, to a maximum of $543 per week in 2017. These benefits only cover 15 weeks, though, while someone with a cancer diagnosis is often absent from work for a year.
  • Personal savings
    It’s possible to use a TFSA as an emergency fund, and even to withdraw money from an RRSP. This second strategy has two drawbacks: first, making an RRSP withdrawal before retirement has immediate tax consequences; second, emptying out your RRSP reduces your chances of having an adequate standard of living during retirement.
  • Borrowing
    If their savings aren’t enough, the couple might have to borrow money, with a line of credit often proving to be the least costly option. In the case of a home equity line of credit, the financial institution could advance credit to a maximum of 80% of the property value. But it could also require an assessment of the applicant’s ability to repay.
  • Crowdfunding
    As a last resort, specialized websites allow people to appeal to the online community for assistance. To do this, however, you have to be comfortable talking publicly about your illness and asking for help from strangers.

Getting better, not poorer

Unfortunately, if you need to consider using these strategies some day, most of them have a serious disadvantage: they will leave you poorer. But there is an approach that, if planned out ahead of time, could allow you to emerge with your financial skin intact: insurance. Several solutions are available.

  • Disability insurance
    Also known as wage-loss insurance, disability insurance pays benefits if you become unable to work.
  • Critical illness insurance
    This kind of policy pays out a lump sum if the beneficiary is diagnosed with a common critical illness such as Alzheimer’s, Parkinson’s or cancer. Critical illness insurance may cover as many as 25 health conditions.
  • Life insurance
    In the case of terminal cancer, an insurance company will generally agree to pay you an advance on your life insurance benefit. The terms and conditions vary from company to company.
  • Life insurance with a health option
    This product combines life insurance and critical illness coverage in order to cover both eventualities, whichever comes first.

So it seems that the old adage applies as much to personal finance as to personal health: an ounce of prevention is worth a pound of cure.

 

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The following sources were used in the preparation of this article:

Statistics Canada, “Health and Work in the Family: Evidence from Spouses’ Cancer Diagnoses,” July 22, 2016.
Finance et investissement, “Cancer : savoir chiffrer l’impact réel,“ September 28, 2016.
Finance et investissement, ”Un diagnostic de cancer peut avoir un impact financier important,” July 28, 2016.
GetSmarterAboutMoney.ca, ”Critical illness insurance basics”.
La Presse, “Lutter contre le cancer… et l’endettement,” November 26, 2014.
Radio-Canada, “Être malade plus longtemps que ne le prévoit l’assurance-emploi,” September 5, 2016.
Government of Canada, “EI Special Benefits for Self-Employed People.”
Actualis, “What if you stopped working tomorrow?”, May 2015.
GetSmarterAboutMoney.ca, What’s the best way to replace my income?”.
Option Consommateurs, ”Lumière sur le financement hypothécaire.”
Bel Âge, “La marge de crédit hypothécaire,” October 24, 2013.
Radio-Canada, “Le sociofinancement au secours des malades,” October 22, 2015.
Actualis, Good for your health. Good for your life.”, September 2014.

 

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