Health insurance a matter of life and death for businesses

Five months ago, award-winning financial planner Alison Renfrew was diagnosed with breast cancer. The news, and the subsequent punishing treatment, made her reassess her financial priorities.

Some dates are memorable; weddings, the birth of children, and diagnosis of cancer.

The latter is a life-changing event. One day we are "normal" relatively healthy people and the next we have been given a potential death sentence.

I was no different from every other person with cancer. We celebrated my mother's life at her funeral on November 20 last year. Two weeks later I was driving up the West Coast of the South Island after a short break down south with my husband, Richard. We were talking about serious things like business planning, extending the house and buying new furniture.

We would have had a longer break, but I had an appointment with a breast specialist the following day.

Pathology reports after a biopsy identified that I had a 3cm grade three lesion. In regular speak, that's an apricot-sized, highly aggressive tumor.

I had a full mastectomy on December 13 and on January 26 I started my first round of chemotherapy.

That's all rather matter of fact, isn't it? The reality is highly emotional. Reena, a friend and pathologist, couldn't tell me what the survival rates were prior to the surgery and pathology report, so we looked them up on the internet. It said the survival rate was 50% after five years and fell to 45% after seven years.

It only took a weekend for us to challenge the statistics. Grade three cancer is one thing, but how many tumors had been surgically removed? How many women underwent chemotherapy, etc? We put the statistics to bed and got on with life.

Major issues for everyone diagnosed with cancer are: "If our income stops how do we make ends meet? How do we pay the mortgage?", and in our case: "How do we run the business if the chief isn't around?"

For us, one option was to sell the business and Richard would look after me, but what could be worse for the caregiver than if their loved one dies and there is no business or a job to return to?

Our work is not about the money, although this is a motivator. It is about the social contacts with our colleagues and clients and the intellectual stimulation of financial and investment planning.

The short-term scenario was that if I were unable to work we would still have significant debt to manage.

I am an advocate of leveraged debt for wealth creation. If you borrow money for investments, you must prepare for an unanticipated event or you could be in trouble, and that means insurance.

Banks don't care if you have cancer, have had a stroke, or suffer a nervous breakdown. If you don't honour your obligations, they will request full payment of loans. If you cannot meet these payments, there will be a fire sale of your assets, which could be sold for discounts of 30%-70%.

I've been lucky. I've been able to work, though miserable and debilitated by the chemotherapy.

I could have chosen not to because I had trauma insurance and a $200,000 lump sum was paid out, which would have enabled us to honour our mortgage repayments on our investment debt for the next two years. This is a good length of time to have a planned asset sale, should it have proved necessary.

Being the owner of an established business, income continues to flow whether I work or not. In addition, my business partner is my life partner and he willingly looks after my clients.

I have income protection insurance, but it only pays out when there is a loss of income. This will be difficult to demonstrate and I am now inclined to think that income protection insurance is a waste of time for some business owners.

If your business grows at 30% a year and has a passive income that continues for periods when you can't work, as ours does, then there's not so much a loss, as a loss of growth, which it doesn't cover you for.

For people in this position, trauma insurance is vitally important.

If you plan to work into your 70s, as many do, it is almost inevitable that you will suffer an unexpected event, so you should have a robust risk management programme in place.

Frankly, mine wasn't good enough. Enough trauma insurance to actually pay off some of the debt rather than just funding the repayments for about two years would have been preferable, though, like my clients, I optimistically believed cancer might come to others but not me. Most of us are optimists, even though the statistics show that not many of us die in our sleep in our 90s.

I was understandably also somewhat half-hearted about paying out thousands of dollars per month on insurance premiums, but I 'm glad I had the insurance I had because I couldn't get any more at the moment.

It's good that I have life insurance, because trying to get it now would be challenging.

I also had medical insurance with Southern Cross, which has now paid out $10,000 for my mastectomy, and breast reconstruction will cost another $25,000. It also meant I did not have to wait 4-5 weeks until mid-January for an operation in the public health system, or have to have the breast reconstruction done on the back of the mastectomy, which I think would have just been too traumatic.

I 'm not HER2 positive, but if I were, Southern Cross would not have paid for Herceptin, which costs up to $120,000 a year. My trauma insurance would have had to pay for that.

The excess from the trauma insurance means I can do something fun like take a cruise, buy a diamond ring or install a swimming pool. That's some kind of compensation for losing a breast, though in my case the bulk of the money has been invested.

In retrospect, I should have asked a colleague to review my insurance programme. That person would have looked at my situation more objectively and stressed my true needs. A subjective approach is ineffectual and this is why you must seek professional advice rather than just trying to figure it out yourself.

You need to know if income protection insurance is appropriate for you, how much trauma insurance you should have, what life cover is appropriate, and how much total and permanent disability insurance is needed.

The results of not having enough insurance when cancer strikes or an accident leaves you disabled can be awful. A South Island family in which the mother of three was left disabled after a horrific car smash was reduced to poverty, and disintegrated under the pressure.