Contractor Insurance: The Cost of a critical illness

The home market has been booming over these past few years and with it, the contracts for renovations and construction has become more numerous. Insuring the businesses of a contractor is fairly straightforward. Like any business policy you start with insuring third party liability, then you insure some property. In the case of a contractor’s insurance policy, there will be coverage that floats around with certain pieces of equipment. But of all the coverage that a broker can put together for contractors, the one that is the absolute most important one is not considered as often as it should be: Critical illness Insurance.

Let’s pretend that I am a contractor in my 50’s. I have built up a pretty successful independent business over the past 20-25 years. My plan is to sell off my business in a couple of years. Here’s the thing – while I am coasting along, I don’t realize that there is a stroke on the horizon just waiting for me.

So what is the cost of a critical illness to me in this scenario – there are 2 scenarios to consider:

Personal Costs Examples:

My business is my source of income. Let’s say I am away for 9 months ($8000 per month x 9 = $72,000)
University costs of Children – while this can vary, let’s call it $10,000 per year per child ($10,000 x 2 kids = $20,000)

Business Costs Examples:

Evaluation of Business – Reviewing its worth to prepare it for sale
Lost business Income – Let’s say the revenue over the 9 months is about $200,000
Legal and Accounting Fees – the fees for handling the sale of my business etc: $ 4000 – $5000
Lost Market Value – My business is being sold quickly – to give me the money to survive: It is selling for a fraction of the cost that I could have sold it for: Let’s call it $250,000.

Total cost to me: about $550,000.

While these numbers are completely fabricated, they bring about an interesting point. If caught with a critical illness, there will be expenses to be paid on top of the medical bills to get me better. The lump sum payment that a critical illness policy can offer, would be there to help manage my personal financial needs as well as the needs of my business.

We don’t know what the future holds but while we live every day to its fullest, we can make preparations in case the worse happens. A critical illness policy for a business owner gives you the financial freedom to get healthy and return to work at your own pace.

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