CRITICAL ILLNESS LIFE INSURANCE

By Gordon Gladstone

This newest insurance product that is making its way across the U.S. is ideal for brokers to sustain sales revenue with the aftermath of Triple X causing term life sales to be sluggish at best. The Model (issued either as a rider or as a stand-alone policy) is peaking the interest of consumers. Is it too good to be true? An insurance product that is truly consumer friendly, paying benefits to the living - the survivor - the policy owner that wants to decide how insurance benefits are used! It is definitely coverage that consumers will be adding to their insurance portfolio. Will you be marketing the policy when your customer asks? As most of us know, Critical Illness coverage began in South Africa in 1981. At the time, a gap in insurance coverage was recognized and the first accelerated death benefit policy was developed. This policy provided "living benefits" for conditions such as cancer, stroke, and heart attack. Critical Illness coverage was expanded and began to be marketed in the United Kingdom in 1985. Sales were slow until the early 1990's when the market exploded. Accelerated benefit policies entered the US market in the late 1980's when a major insurance carrier began accelerating a policy death benefit when the covered insured was diagnosed as terminally ill - or having a life expectancy of less than 12 months. In 1988 an interest sensitive whole life policy integrated Critical Illness benefits accelerating 25% of the face amount for a covered Critical Illness. Critical Illness coverage has developed over time in Canadian and US insurance carriers with group, individual, health and life based products. Policies are similar in today's market - typically covering Critical Illness such as heart attack, stroke, paralysis, renal failure, life-threatening Cancer, Alzheimer's disease, and total disability. During a recent national meeting of the Actuarial Society, standing-room only crowds gathered to discuss pricing, statistics and results of study groups regarding Critical Illness policies. Over the coming months the number of companies offering a Critical Illness policy will likely double and perhaps triple.

THE CRITICAL DIFFERENCE

Why is Critical Illness coverage so different and so important? Today's medical technology has progressed to a stage where many Critical Illnesses no longer result in death. Increasingly high numbers of survivors of heart attack, stroke, and cancer are populating the US, though many survivors suffer greatly from the financial crisis due to the high cost of non-medical expenses such as home modification, extended therapies, travel, family routine changes, loss of routine income, etc. The Ability to receive the benefit of a life insurance policy as a living benefit gives a policy holder greater control over financial survival. Medical statistics are enlightening: In 1996, 1.5 million people in the US filed for personal bankruptcy. The most common reason given for financial failure was not compulsive spending with credit cards - it was personal illness!

Each year 1.5 million Americans suffer a heart attack, 75,000 are under the age of 40, nearly 50% survive three years or more. Americans suffer 400,000 strokes each year; 90% survive, many with partial or total disability. In the US 3,000 people are diagnosed with life-threatening cancer each day, 40% are still alive after five years. Six months of chemotherapy can cost more than $40,000 and many cancer treatments can range from $100,000 to $250,000.

Critical Illness coverage in the US begins a revolution of "new" living insurance policies that will cause consumers to look at insurance coverage in a new and different way. No longer is it necessary to find the lowest price term, when customers realize they can have life insurance and living insurance for one low price. The social ramifications of Critical Illness coverage can be significant, helping individuals provide real financial security to their family should a Critical Illness occur - if they survive or not. Our industry is one of service. Finally with the development of Critical Illness life insurance, we are able to service consumers with the best of "all insurance worlds" benefits if the insured lives or dies.

CRITICAL MARKETS

The markets for Critical Illness policies are limitless but to address some specific segments consider the following:

The high-income, head of the family individual with a comprehensive insurance portfolio that includes "non-can" DI, cash value life insurance, and a variable annuity. Does a CI policy complement this portfolio? Certainly the receipt of a large lump sum benefit might reassure the insured that cash values of the life insurance and the annuity would not need to be invaded should a Critical Illness threaten the normal standard of living for this type of family. The lump sum would be beneficial when the elimination period of the DI program causes benefit payments to be delayed for 90 - 180 days or more. The need to pursue "new or experimental" medical procedures could be funded by this same cash payment. The CI policy is the perfect 'partner' policy to existing coverages.

What about the 50-ish couple that isn't quite ready to buy long-term care? If they could purchase $100,000 benefit for less than $100 (each) per month, wouldn't they be comforted to know a lump sum benefit would be payable in case they suffer a heart attack or stroke. Financing a long stay in a facility that rehabilitates stroke or heart attack victims could be funded by the CI policy benefit.

Business owners with a buy-sell agreement funded in the past may want to upgrade due to the growth and success of the business, with CI coverage. Additionally, business owners with a key person to insure can also benefit from CI. The lump sum payment upon diagnosis of a heart attack or stroke can certainly buy the company time - time to see if the key person recovers and can return to work, time to find a replacement, time to make tough decisions.

CI coverage can be ideal for entrepreneurs who work from home such as computer programmers, freelance writers or the professional who is taking time from a career to raise children or care for an elderly parent. This segment of the population is unable to purchase adequate disability income yet has a tremendous need. With a large segment of this market being women, consider recent medical statistics that should cause women to take notice:

• Cardiovascular disease ranks first among all disease categories in hospital discharges for women.
• Of all female deaths in America, 44.4% occur from cardiovascular or coronary heart disease and stroke.
• Coronary heart disease claims the lives of 234,088 females annually compared with about 43,090 lives from breast cancer and 61,700 from lung cancer.
• In 1996 females accounted for 60.9% of all strokes.
• After menopause, women are more likely to have a heart attack than are men.

When marketing CI with a "life chassis" the cost for women is lower, yet the number of policy holders for all types of insurance including CI is lower for females than for males.

Naturally, offering CI coverage at the work-site either as a rider, group coverage or a voluntary supplemental benefit is an important segment to pursue. Reaching rank-and-file employees at the workplace provides these consumers the opportunity to purchase valuable, (hopefully) portable coverage. Employees with a good LTD program easily recognize the benefit of a lump sum payment to eliminate or reduce debt allowing the family to maintain their standard of living even though the DI benefit may equal a little more than half their normal income. Coverage tied to mortgage amounts can also be attractive; realizing that the mortgage could be eliminated in the event of heart attack, stroke or cancer can be very appealing.

The concept of a policyholder having control over the insurance benefits that they purchase is extremely tempting. And though many don't want to face their own mortality, most recognize the fact that they could suffer a heart attack or stroke. Many consumers have had family members, friends or acquaintances that have survived a life threatening Critical Illness. The realization that the policy benefit will be paid upon diagnosis of a covered condition is a concept that appeals to the general public.

As more and more companies embrace the concept of Critical Illness coverage and as product designs evolve, the consumer and broker are destined to be the winners. It is likely that every product development committee at every insurance company in the US will consider a Critical Illness aspect to the design of all life insurance products in the future. And, with medical technology continuing to increase the population of Critical Illness survivors, brokers can't avoid being energized by the prospect of making CI coverage an important part of every insurance portfolio.

As insurance professionals we recognize our responsibility to help consumers assess risk and then purchase products that can best protect, reduce or eliminate those risks. There is no doubt that this new category of insurance coverage can convert even the greatest skeptics and relieve the considerable financial burden that so often is associated with surviving a critical or life-threatening illness.