Critical Illness vs. Life Insurance: The Underwriting Does Differ
Critical illness insurance is the newest, and I think the most unique and innovative insurance product of the 21st century.
But although more and more people are discovering the product and its benefits, CI insurance still remains a mystery with many–both in the area of what it is and does, and also in such technical areas as how it is underwritten.
Regarding the what-it-is question: CI policies pay a lump sum benefit if the insured experiences one of the covered life-altering illnesses such as heart attack, stroke, cancer or paralysis.
The money can be used for any purpose. However, the product is typically positioned as a policy that pays benefits that will help the insured pay for living, medical and the myriad other expenses encountered in the months and years following onset of the medical event. (See sidebar for information about the likelihood of people suffering CI.)
Now, for the underwriting issues. Underwriting presents, for many agents who are pioneering in the sales of this product, a major concern and issue.
One of the biggest questions they have is: How can clients receive a preferred rating in life insurance, and yet be rated for CI insurance?
The answer lies in the fact that, when you are considering an applicant for life insurance and CI insurance, you are talking about underwriting two completely different risks.
In a nutshell, life insurance underwriting reviews any factor that would decrease life expectancy (mortality). By contrast, CI underwriting looks for any indication that the prospective insured may be at risk of having a heart attack, stroke, cancer or any of the other covered illnesses (incidence).
In the early 1900s the incidence rates and the mortality rates of serious medical conditions were close together. For example, if someone were diagnosed with cancer, they probably would die from it.
In 2001, however, because of more widespread screening and better treatment, the incidence (occurrence) rate of many cancers is rising as they are discovered at an early stage, but the mortality is falling as improved treatments prolong life.