In this world nothing is certain but death and taxes." While no one can argue with Benjamin Franklin's wisdom, advancements in medical technologies and treatments have helped to prolong people's lives. Even though men and women are living longer, they are also likely to be relying on dual incomes and delaying retirement to make sure they have the funds to enjoy those additional years. When an individual is stricken with critical illness, his chances of medical survival are great, but unless he is prepared with a complete financial plan, his financial health is most certainly at risk.
Health and wealth
Critical Illness (CI) insurance is no longer being looked at by producers and their clients as just a nice thing to have in the event of an unexpected illness, but rather as an essential element of one's overall financial protection portfolio. Consider the following statistics:
o This year about 1.2 million Americans will have a first or recurrent coronary attack. Approximately 62% of these people will survive.1
o On average, someone in the United States has a stroke every 40 seconds; and strokes are a leading cause of serious, long-term disability in the U.S. 2
o The five-year relative survival rate for all cancers combined is 66% in the U.S. 3
A 2007 study conducted by Harvard University and the Robert Wood Johnson Foundation reported that ever-increasing medical bills are the primary factor for more than 60% of personal bankruptcies in the U.S. In addition, more than 75% of these bankrupt families were middle-class families with health insurance who were still overwhelmed by their medical debts. 4
These facts make a strong case that if an individual or their loved one is stricken with a catastrophic medical event or sustained illness, they had better be prepared to replace lost income for a significant period of time or face the prospect of financial hardship. CI insurance is one of the few products that make sense for just about everyone. It provides a lump-sum payment upon diagnosis of a covered medical condition, and today's policies cover a wide range of illnesses. However, with limited time and resources to market themselves, brokers should focus on segments of the population who, if faced with a severe medical set back, will be in dire straits if they don't have it.
The missing component in succession planning
Most producers approach business owners with life insurance or disability insurance (DI) solutions when discussing succession planning. While these products are important components of succession planning, they are only two-thirds of the solution needed to protect the business, the owner and his or her key personnel.
When a key person in the business -- whether it is the owner or a member of senior management -- is stricken by a critical illness, it can create a significant financial strain on the company. Having a CI policy in place can provide the business with a safeguard if the owner or an executive becomes seriously ill. Having money in the bank can provide adequate time for the individual to recuperate, or provide the business time to transition workload on to existing or new staff. In addition, the CI policy would provide funds at the diagnosis of an illness, compared to the DI buyout, which may require six months to a year-long waiting period before making a payment.
Non-earning and part-time working spouses
Another opportunity that may be sitting in front of most producers is selling the concept of CI insurance to non-earning and part-time working spouses. While more and more households have dual incomes, there are many families that choose to have one spouse stay home to take care of the children and manage the household. But what if something happens to the spouse that is the stay-at-home parent? Can the working spouse take off to take care of the other, raise the kids and effectively keep everything running smoothly?
According to Salary.com, a stay-at-home parent's worth is equal to $116,805 a year.5 Purchasing the right CI insurance product can ensure that the sick or recovering spouse has plenty of time to recuperate, while having enough money to pay for childcare, rehabilitation services and other unexpected expenses that may occur. If the working spouse has to take time off of work to care for the spouse and the kids, he or she can rest assured that any loss or reduction in income will be replaced by the CI policy.
Improvements in CI
Other relatively new product features to CI policies are the inclusions of a return-of-premium benefit and the choice of protection periods. In the event the insured dies from a cause that was not a covered condition, all premiums paid to that point will be returned to the named beneficiary. While the sum returned won't be as much as a life insurance policy, it will still provide some dollars for other expenses and needs. The ability to choose protection periods for a policy has been added by carriers to attract a wider customer base. A few carriers now offer CI policies in 10-, 15-, 20- and 30-year periods, allowing clients to customize their coverage to coincide with a major life event. For example, a parent can choose a coverage period that expires after his or her last child graduates from college.
One of the biggest complaints about CI insurance is the difficulty for producers and clients to understand the triggering point for illnesses or conditions that are covered under a CI policy. To simplify the process and to alleviate concerns among clients, some carriers have added a Loss of Independent Living clause to their CI policies. Loss of Independent Living is defined as the permanent loss of ability to perform two or more of the six designated Activities of Daily Living or (ADLs) -- bathing, eating, dressing, toileting, transferring and continence.
Making decisions based on health, not wealth
Ultimately, CI insurance provides something overlooked in many planning discussions -- the peace of mind to make the right decisions on treatment when a life-altering event happens. The question advisors should be asking their clients is how can you afford not have a CI policy?
Convincing clients that CI insurance protects their income, which by default protects their family and their assets, is paramount. It also allows a client to make smart decisions about his or her health and not ill-advised, short-sighted financial decisions that can put long-term financial goals at risk.
Bob Clancy, CLTC, is National Director, Accident and Health Sales Development and Training, at American General Life Companies where he supports all of the distribution lines for the company. He serves on of the board of directors for the National Association for Critical Illness Insurance (NACII) and on the advisory board for the newly established American Association for Critical Illness Insurance. He can be reached at bob.clancy@aglife.com or (303)750-3545.
American General Life Companies, www.americangeneral.com, is the marketing name for the insurance companies and affiliates comprising the domestic life operations of American International Group, Inc., including American General Life Insurance Company.
Footnotes:
1. Know the Facts, Get the Stats, American Heart Association and the American Stroke Association, 2007
2. American Heart Association, Heart Disease & Stroke Statistics 2009 Update At a Glance, 2009
3. American Cancer Society, Cancer Statistics 2009.
4. Reuters, "Medical bills underlie 60 percent of U.S. bankrupts: study," June 4, 2009
5. Salary.com
