Who Should Consider Buying More Insurance?

Assume there are 2 lawyers with similar incomes, dependents, savings and debts. The only significant difference between them is their overall health and lifestyle choices.

Lawyer A is a male, 35 years old, exercises every day and plays soccer in the summer, hockey in the winter. His blood pressure, cholesterol and Body Mass Index score are excellent. He’s never smoked, drinks in moderation and looks 10 years younger than his actual age. It’s not an exaggeration to say that this guy’s health is better than average.

Lawyer B is also 35 years old. He wants to exercise, but never finds the time. His weekends typically involve television, chips and booze. He thinks being sedentary helps him relax, which is good because his doctor told him he has high blood pressure that needs to be treated. He was also told to quit smoking and lose at least 50 lbs. Google “couch potato” and you’ll probably see his picture.

Who should buy more insurance? Lawyer A, or lawyer B? 

Did you guess lawyer B or did you assume this was a trick question and go with lawyer A?

Lawyer A and B should have the same need for life and disability insurance. However, I would argue that lawyer A’s superior health creates some additional financial protection concerns. That may seem counter intuitive until you consider the expected outcome of a serious illness.

Assume both of our lawyers are diagnosed with the same life threatening cancer. Who would you expect to have the best odds of survival? All other things being equal, lawyer A’s superior physical condition gives him much better chance of beating this illness when compared to lawyer B. So lawyer B dies and his life insurance pays a benefit to his beneficiary. That’s the end of the story for this fellow, but what about lawyer A?

As expected with a serious cancer, lawyer A’s fight to survive could take several months, even years. During that time he may not be able to work, and will require expensive treatments not covered by his provincial medical plan. Lawyer A may have disability insurance that provides an income, but that typically provides about 60% of his prior after tax income. His additional health care costs would eat into his savings and risk creating a serious financial hardship for his family. As a result, lawyer A should consider the additional protection of a Critical Illness (CI) insurance policy.

CI pays a lump sum if the insured is diagnosed with and survives a covered serious illness. This cash is received tax-free and could be used for any purpose. The money could be used to cover the added costs associated with recovery, the gaps between disability insurance benefits and original take home pay or even a family vacation. Clearly, lawyer B also has a need for CI, but his current state of health may make it expensive or impossible to purchase this protection as it is not typically offered to people in less than good health.

In addition to CI, lawyer A would be wise to take advantage of his good health to apply for preferred life insurance rates. These are rates offered by insurers for people in much better than average health and the savings can be significant. These saved premiums could be used to offset some of the cost of buying a CI policy or applied towards improving other insurance benefits.

Now take a different illness, like a stroke, where both lawyer A and B survive. Once again, lawyer A has the best chance of a good outcome. Lawyer B survives, but is left permanently damaged and forever unable to work in any occupation. He remains eligible for his disability insurance benefits until age 65.

Lawyer A is strong enough that he can do the therapy needed to regain most of his lost abilities. Eventually, he recovers to a point where he is able to return to work, but at a reduced capacity or in a different occupation for less pay. Under a typical employer provided Long Term Disability (LTD) plan, he would lose his monthly benefits. Had lawyer A used his good health to purchase personally owned disability insurance, he would have been able to buy better quality coverage that would pay him a benefit as long as he is never able to work as a lawyer. It would also pay him a benefit if he can return to work, but at a significantly reduced income.

Both our lawyers have similar disability and life insurance needs, but if a serious illness strikes, lawyer A is at the greatest risk of surviving only to be faced with significant expenses. If you are lawyer A, don’t use your present state of health as an excuse to avoid purchasing insurance protection. Serious diseases like cancer and stroke can strike anyone. Your key advantage is that your health lets you buy the protection you need at the lowest cost today.

Please note that my advice is not intended to replace that of a qualified insurance expert who has personally reviewed your specific benefits and insurance needs. If you want to learn more before speaking to an insurance agent, The Canadian Bar Insurance Association (CBIA) offers excellent insurance education articles and planning tools for lawyers at www.barinsurance.com. You can also find your local CBIA insurance sales representative who can assist you with your insurance questions and needs.