Many individuals today are in need of disability income (DI) protection and, for various reasons, are ineligible for coverage, unable to purchase coverage, or are limited in how much they can purchase. Critical illness insurance is supplemental coverage that can span certain gaps for these individuals, and it is suitable for clients of all ages, genders, and socioeconomic market segments.
The advantage of critical illness coverage is that it is not rated based on occupation and, with few exceptions (e.g. people who work with explosives, loggers, miners), most blue-collar workers can purchase critical illness protection. This coverage can provide money to replace lost income during their recovery.
Rationale for purchase
You can open a discussion about critical illness insurance with your prospect by asking, "Have you ever known anybody who suffered a major heart attack or stroke or invasive cancer and survived? And, if so, would payment of a lump-sum benefit upon diagnosis have made a difference in their recovery?"
A lump-sum payment like this would help relieve stress associated with a critical illness by alleviating many financial concerns and allowing the individual to focus solely on getting better. Who wouldn't want that kind of peace of mind?
Existing disability policies are often not enough. Most insurance carriers limit the income replacement rate for disability insurance so that the employee remains motivated to return to work. However, that leaves many insureds in a shortfall position, forcing them to dip into savings to make ends meet. In addition, most individual long-term DI plans have a 90-day elimination period, which means your client will have to go without income for months before receiving the first benefit check from the insurance company.
A critical illness policy can help fill the income gap if your client is disabled by a critical illness. There is normally no elimination period with critical illness, and payment is made upon diagnosis, putting cash in the policyholder's pockets during the DI elimination period and negating the need to tap into savings.
Remind your client that major medical does not provide first-dollar coverage and may leave them with high out-of-pocket expenses. Critical illness insurance helps fill in the gaps in current health coverage.
Because the product is offered in a lump-sum benefit similar to life insurance, some assume the need is equal to the life insurance need. This is not the case. Life insurance is usually based upon the amount of total income lost over the person's expected working life. Critical illness insurance should be viewed as a transitional benefit that lasts until the insured recovers and returns to work. Thus, the need is short term -- six to 24 months -- and the amount of coverage should match accordingly.
Cost is also important and, unless you are talking to a high-income professional who is not concerned with the premium, it is important that the critical illness insurance be kept affordable. Remind your client that critical illness insurance is a supplemental insurance program and not primary coverage.
Jay Drucker is director, accident and health product development at AIG American General. He can be reached at jay.drucker@aig.com. Bradley Harris is vice president, accident and health at AIG American General. He can be reached at bradley_harris@aigag.com.
