Introduced in 1983, critical illness insurance (CI) has long been a top seller in other countries. At one point, more than 70 insurance companies in the United Kingdom were offering critical illness policies -- in fact, more critical illness insurance is sold in the U.K. than life insurance. The product was introduced in Australia in 1990, and now nearly all Australian life insurance companies offer CI. And in Japan, a recently introduced critical illness product sold 500,000 policies in just 10 months, with 6 million policies sold by the end of its fourth year.
Now, the product is finally catching on in the United States. According to recent Agent Media studies*, in 2006 only 17 percent of agents indicated that they sold critical illness policies. In 2007, however, that figure jumped to 34 percent.
Consider that most long term care and disability policies have been sold with 60 or 90-day elimination periods. Let's say your client, Jane Jones, has a heart attack and cannot work while recovering. She carries a disability policy, but it won't begin paying for a couple of months.
So where does this gap-filling income come from?
How it works
All critical illness policies are designed to pay a policyholder who has been diagnosed with one of the more common conditions -- cancer, heart attack, stroke, Alzheimer's disease, etc. It's strictly triggered by diagnosis -- meaning that your client doesn't have to wait for a treatment plan or continued claim forms from their doctor to receive benefits.
With CI, the insurance company will pay a lump sum to the policyholder when their doctor first diagnoses them. The policyholder can then use that money for anything they need while they're recovering.
To determine how much coverage your clients and prospects need, first discuss how much cash would cover three months worth of living expenses (and operating expenses if your client is a business owner). Most consumers will need somewhere between $25,000 and $150,000 to pay their bills within the first 90 days of their diagnosis. The minimum benefit for a critical illness policy is $10,000; the maximum coverage can be as much as $500,000 and occasionally $1 million.
The best time to buy a critical illness policy is when your clients are healthy. While critical illness underwriting isn't as exhaustive as LTC or DI underwriting, CI policies still cannot avoid this process. With CI, underwriters will ask applicants if any of their immediate family members have had a heart attack, stroke, cancer, etc. Most companies require applicants to be younger than 65. Most insurers will keep the policy in force throughout the client's lifetime, but their policy benefits may be reduced by 50 percent once they turn 65 or 70 years old.
If your client has a return of premium rider on their policy and does not use the policy during their lifetime, the insurance company will return the paid premiums after the policyholder's death to the policy's named beneficiary or beneficiaries. For most companies, this benefit is optional -- only one company automatically includes this provision.
Who buys it and why
Many insurance professionals know the value of LTC and DI, but that doesn't make the products any easier to sell because of the emotional issues involved when clients are forced to imagine themselves with a debilitating illness. With CI, though, your clients and prospects probably can imagine having a heart attack or stroke, but then going back to work after a recovery period. And while receiving the benefits of a CI policy, clients can use that money to help fund their family's living expenses, pay deductibles, cover copays, try alternative treatments, or pay their business operating expenses. No ongoing treatment plan needs to be submitted. It just requires an initial diagnosis of any of the qualifying critical illnesses.
Many younger consumers who aren't yet ready to purchase an LTCI policy may actually be open to considering CI. Just ask your clients if someone in their family has had a heart attack, a stroke, or cancer. Then ask them if a check for $50,000 would have given that family member better peace of mind knowing that his loved ones wouldn't suffer financially while taking care of him. That check from the insurance company could eventually mean that your client won't have to worry about paying their bills as they recover before their DI benefits kick in.
Making the sale
Your ideal clients are in the 45 to 64-year-old demographic. Younger consumers might not be as interested in buying a policy until they see a qualifying illness strike somebody they know. The companies that issue critical illness policies also require that applicants be no older than age 65 at the time of application.
One way to introduce the product to your client or prospect is to speak about it as "financial recovery insurance." Given all of today's medical advances, more and more people are surviving serious illnesses and returning to work after their recovery period. Some will need care for a period of time, and yet their monthly bills will always keep coming in the mail. Having a CI policy can help those policyholders avoid a financial blow during recovery.
For example, the average cancer cost per death in 2004 due to lost productivity from premature death was $181,490, according to the American Cancer Society's "Cancer Facts & Figures 2005" and the U.S. Census Bureau's "Annual Population Estimates 2000 to 2006." Furthermore, 50 percent of mortgages in the U.S. are foreclosed because of medical expenses, according to an article in a 2005 issue of the journal Health Affairs.
Start your sale by taking a general health history of your client or prospect. Learn how to ask a few key questions that are important for underwriting, such as: "Has anyone in your
immediate family ever had a stroke, a heart attack, or cancer?" or "What was the financial impact on their lives when this happened?" This creates a very distinct vision in your client's mind by bringing the issue close to home.
You can then determine the benefits they would need for a critical illness policy and select an insurance company that fits best. You can also start selling these policies to your clients during annual reviews. And, you can reach out to new clients through direct mail and advertising.
It's hard to stand out from the crowd unless you have something different to offer. Critical illness insurance is one kind of gap filler that will help support clients until their LTCI or DI benefits kick in.
Wilma G. Anderson, IAR, RFC, recently launched a critical illness insurance wholesaling operation. She can be reached at wilma@criticalillnesscoach.com or 720-344-0312.
*Agent Media is publisher of the Agent's Sales Journal.
