Critical Illness Is it really worth it?

Tom is a healthy 40 year old non-smoker. He's married with 2 children, has a house, a mortgage, and has a career he loves making $80,000 per year as a self employed consultant. His wife, Teresa (also a 40 year old non-smoker), works part time with a local business with minimal income. Tom and Teresa have their financial house in order as their mortgage will be paid in about 10 years, have about $100,000 in RRSPs and have put some money away for their children's education. They both have adequate life insurance coverage and Tom has a very good Disability Income insurance plan.

They had recently reviewed their finances and goals with their financial planner, John, who had suggested that Tom should have a look at a Critical Illness plan. John had explained and showed Tom where a CI plan could fill some gaps for their protection and how it could protect them further from financial losses in the event Tom were to become critically ill.
Tom thought that his Disability Plan could cover him for the long run and that if he needed money, he could use his RRSPs. But, what would be the real cost to Tom and Teresa if Tom were to suffer a critical illness?

Let's assume Tom suffers a critical illness at the age of 50 and the cost of the critical illness, including travel to the best care clinic, treatment, drugs, and lost income, is $100,000...

There are many instances where Tom's disability plan would not come into play in the event of a critical illness. For example, a 45 year old male who suffers a heart attack has an average hospital stay of 7 days and a recovery of 4 - 6 weeks. A disability plan with a 60 day waiting period would not have started to pay benefits.

Disability insurance is based on and paid for an inability to work. Even though you may suffer a critical illness, you may still be able to work or you may only be off work for a short period of time therefore not allowing the disability plan to pay.

As mentioned earlier, Tom and Teresa have about $100,000 in their RRSPs split evenly between them and they contribute approximately $6,000 per year. By the age of 49 using a rate of return of 7.00%, Tom and Teresa would have accumulated $260,744.61 in their RRSP portfolio.

Assuming Tom suffers a critical illness at age 50, Tom and Teresa would have to withdraw not $100,000 but $154,207 from their RRSPs in order to have $100,000 after tax. This would leave their RRSP balance at the end of 10 years at $131,209.73.

A Critical Illness plan for $100,000 using a Level Premium to age 75 structure and the Return of Premium option (100% at age 65 of premiums returned) is $1,225 per year.

Using this information, let's analyze 4 situations and what the financial outcome of each situation is: