MULTI-BENEFIT CRITICAL ILLNESS POLICIES

WHAT ARE THEY?

By Gordon Gladstone

The new millennium brings the promise of a new age in the life insurance business, and the birth of a whole new concept of life insurance. Traditional policies marketed over the past 100 years have put the emphasis of claims on the policyholder's death. With medical science's advances, our social environment is changing dramatically at breakneck speed. People are living longer than ever before and surviving illnesses that only a few years earlier would have meant certain death.

The life insurance business also is evolving, far faster than most people are aware, to keep up with these changes. The emphasis is shifting from death benefits to "Living Benefits." We have seen the advent of "Accelerated" benefits on life policies, the birth of long-term care policies, the birth of long-term care policies, and the re-arrangement of cancer policies. The recent introduction of "Critical Illness" brings a whole new field of innovative, necessary, and desirable policies that will make life insurance producers' jobs so much easier and more worthwhile. These consumer-friendly products bring a mood of successful selling from overseas markets where they have changed the life insurance business in a positive way.

I call these products "multi-benefit" life policies, which best describes their function. The multi-benefit Critical Illness policy pays a lump sum benefit to the insured upon diagnosis of a covered condition. Covered conditions often include Cancer, heart attack, coronary bypass surgery, angioplasty, Alzheimer's Disease, stroke, major organ transplant, kidney failure, multiple sclerosis, blindness, paralysis, and so on. The benefit is paid in one lump sum with no restriction. The insured doesn't have to die to receive payment (some policies don't have a death benefit - each insurer's policies have different benefits).

These products are needed when someone suffering a Critical Illness is unable to work for a protracted period. During the recuperation period, usually three to thirteen months, the insured can't work, is therefore unable to earn income, and is either without income or has a vastly reduced income.

But daily living expenses such as mortgage payments, care insurance, car payments, and school fees continue. Many people have had to go into debt simply to survive the financial calamity of a catastrophic illness. Often this meant foreclosure on the home or losing their savings, their investments, and even their families.

For the first time, a policy enables the average person to offset the financial strain of a health-invovled calamity by accessing funds to bring healing and stability to his/her life. This in turn minimizes the emotional stress of financial hardship and speeds up the healing process.

MARKET APPLICATIONS

These new products' sales applications are almost limitless. They can be sold as easily in the work-site and group markets as to individuals. The product is ideal for mortgage protection (50% of all mortgage foreclosures in the United States are due to Critical Illness) and provides security for single parents, single people, two-income families, homemakers, and heads of households.

The multi-benefit life policy is well suited for the sole proprietor and small business owner who could lose his or her business should a major illness occur. These policies also are ideal for key-person coverage, corporate finance coverage, and executive benefits, as well as buy/sell agreements. Additionally, because of the difficulty in obtaining disability insurance, these policies are both good supplements and complements to disability insurance coverage.

These policies' use is limited only by the sales representative's imagination. There is almost no situation that would not be well served by these policies.

SALES TECHNIQUES

This consumer-friendly policy is easy to present. In the United States, the multi-benefit Critical Illness policy has been presented as a life policy and as a health policy. Generally, the health policy format does not have a death benefit (which seems silly, as we are talking about major illnesses that could result in death), and their premiums are much higher than those on the life policy format. It has been found that presenting the policy as a multi-benefit policy, rather than a life insurance policy with an additional benefits' rider, is easier to explain. Unfortunately, presenting the policy under a health insurance format is more difficult because there is usually a restricted or zero death benefit, which reduces sales choices.

WHAT TO LOOK FOR

A stand-alone, multi-benefit Critical Illness policy should cover as a minimum the following: lump sum payment upon diagnosis of heart attack, stroke, and life threatening Cancer. It is strongly recommended that life insurance be a benefit.

Payment should be as a lump sum. There should be no waiting or survival period once diagnosed. An exception is the pre-existing period after acceptance before a claim can be submitted, usually 30-days for heart attack and 60 to 90 days for Cancer, from the inception date.

Premiums should be guaranteed for the period of the policy (10 - 15 - 20 year terms) or a guarantee of maximum premium increases. The policy should be fully portable (for group or voluntary work-site markets). Premiums should be reasonable ration to risk (some companies have high premiums, thus offsetting the sale), so shopping around is suggested. Return of premium policies are unnecessary, and increased premiums prevent proper sale.

The policy should have easy to understand benefits. Producers should beware of red herring benefits or payment of claims as an indemnity. The idea of the policy is lump sum payment; this is not a disability income policy. The policy should be a complement or addition to major medical, disability, long-term care, or life insurance, not a replacement for these existing policies.

These policies' evolution is going to change vastly the way life insurance is sold and bought. We no longer will be looking at the lowest premiums for a policy. In the future, we consumers will be able to choose which benefits we require on our policy, and pay a premium commensurate with those benefits, thus making it easy to tailor policies for each person.

Although these policies were introduced on a general basis only three years ago in the United States, they have been increasing in sales, albeit slowly, because of a lack of positive life insurance business marketing and use.

SALES OPPORTUNITIES

Based on business-wide sales, I believe these products are about to explode in the United States. Before this happens, I anticipate the life insurance business will provide the market with a plethora of saleable policies priced correctly, rather than the hodge-podge of polices now available, with only about 10% being worth their premiums.

For producers astute enough to understand this revolution, the opportunity right now is so great that it would be almost like owning their own mint.

For producers who are too lethargic to act, this opportunity never again will be repeated. One producer to whom my company introduced the policy earned more than $1 million in commission in 2000. Another who has been a life insurance producer for five years sold more than 400 individual policies last year, and a third producer in San Francisco has made at least one daily sale of a policy with a face amount of $300,000 or more for the past four months.

For producers in the group or voluntary work-site market, the sky is the limit! The choice is all ours A new day in our business has arrived, and it is beautiful and sunny while providing a service to our clients for shielding them from rainy days.