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BUSINESS GUARDIAN guardian.co.tt MARCH 9 • 2017
Cashing in insurance claims
William, 39, was di-
agnosed with a life
one year ago. How-
ever, after a barrage
of tests and medical
treatments, his prognosis seems very positive
and he should be back out to work in a couple
months. His medical care was very expen-
sive and it exhausted nearly all of his liquid
resources. Fortunately, some years prior Wil-
liam invested in four insurance policies; each
of which covered his illness.
He has started the claims process and the
companies assured him that once the requisite
medical investigations were done he should
receive payment within a few weeks.
A close relative, Marie, who works in the
industry expressed concern that if William
claimed on all of his plans today and received
the sums assured he will no longer have cov-
erage nor will he be eligible for any further
Based on this suggestion, William is con-
templating holding off claiming on one of the
policies, a critical illness plan for $500,000
with premiums of $575 that provides coverage
until age 75. If no withdrawals or claims are
made, the cash value, which is now $24,000, is
projected to increase to $165,000 at maturity.
Should he claim on the plan, William would
only receive the sum assured.
William is also a member of his company's
group health plan from which he could recover
about $120,000 of his medical expenses but
he is worried that if he utilises this benefit, it
may affect the benefits for his wife and two
Excluding the group medical plan, the total
sums assured of all his insurance policies is
If William collects the full amount, he plans
to park it in his credit union, which has consist-
ently paid dividends of five per cent per annum.
He also owes the credit union $800,000 on a
mortgage with monthly installments of $6,068
until age 60.
Before his illness he had plans to refinance
this mortgage to extend his house and create a
two-bedroom apartment that could be rented
for up to $4,000 per month.
The extension was estimated to cost
$350,000 but, with the changes in his health,
William is not certain which would be best:
incur further debt, use part of the insurance
proceeds, or just put the project on hold and
keep as much cash as possible.
In our discussion we will need to answer the
1. Should William claim the $120,000 on his
group medical plan?
2. Should he claim on the $500,000 critical
3. If he does claim on all policies, how should
William treat with future medical needs?
4. What is the best way to allocate the pro-
ceeds of his insurances?
Claim or not to claim?
Company Health Plan: The nature of a
group medical plan is that the healthy mem-
bers help pay for the treatment of the infirm
and even when the sick recover, their future
contributions will help offset the payout of
their claims. William's claim for reimburse-
ment of $120,000 in medical expenses should
not preclude benefits for himself or his family.
There may, however, be some limits as to how
much he could claim as regards to a specific
illness during his tenure in the plan.
Rather than guess he should simply ap-
proach his company's benefits department
or the insurance company to find out how
this claim would impact his and his family's
Critical Illness Plan: If William does not
submit his claim within the period specified
by the policy he would lose the opportunity
to get these funds unless at a later date he is
diagnosed with the same or another illness
covered by the plan.
There is a saying that: "money today is more
valuable than money tomorrow." Apart from
inflation, which erodes money's value over
time, cash in hand today could be invested to
create even more wealth tomorrow. Choosing
to defer his claim means any future payouts
he might receive from this policy would be
Further, contemplating trading in a certain
$500,000 cash inflow today in exchange for
an uncertain one in the future simply does not
make sense. In fact, if the opportunity nev-
er comes up for a claim in the future and the
plan matures at age 75, all he would receive
is $165,000 which will be worth significantly
less in real terms.
If, however, he accepts $500,000 today and
invests in his credit union at, say, five per cent
per annum, it would be worth $3,013,533 by age
75. If he were to also invest the $575 monthly
premiums that is no longer has to pay on the
plan, he would have amassed $3,707,268.
Continued on Page 17
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