CI/LTC Packages Could Spur Sales Of Both Lines Of Insurance

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Industry interest in critical illness offerings appears to be substantial, yet sales have been relatively modest. What can be done about it?

There is a similar problem with long term care insurance. LTC sales continue to lag in the pre-retirement years. Considering that most incidents of chronic illness dont occur until well into retirement, this LTC trend is predictable. Even so, marketers want to know: How can we address the LTC sales lag, and the apparent unwillingness of individuals to fund LTC until it gets to be quite costly or too late (i.e., if the consumer is no longer insurable)?

My suggestion: Address both issues by linking the two types of benefits. Before seeing how that can happen, it helps to review todays CI landscape.

Interest in CI insurance is rising in many sectors. Associations want to offer it to members. Insurers want to offer it through associations. Reinsurers see it as a win-win. And the media is tuning in.

Why the interest? People are beginning to see CI insurance as a product that will help consumers who have been stricken with a chronic illness to pay down debt, make up for lost wages, and fine-tune their retirement planning. They recognize that the myriad advances in emergency care and drug efficacy have enabled people to survive life-threatening illnesses, only to live in dire financial straits thereafter. In short, awareness is growing that people have a major need for a financial protection product that addresses this exposure.

This is a need that has been inadequately addressed until now. It shows up in many aspects of life that formerly have not been acknowledged.

For example, if an individual belongs to an HMO that does not offer the highest level of treatment for the persons critical illness, the patient will likely need to travel to a major regional medical center to obtain appropriate care. The health plan may pay for the cost of care, but what about the cost of travel to the facility and the ancillary costs such as childcare? Other critically ill people may need special housing adaptations, such as ramps and widened doorways.

The driving question is: Where will the money come from to cover these extra costs?

The question becomes more pressing when you consider the target markets. For instance, 40- to 60-year-olds are a key CI market. Heres why:

Although most people in this age group are in their peak earnings years, have their childrens college education funding behind them, and may be planning for retirement, many are saddled with significant debt. Further, because they have compartmentalized their debt into different categories, they arent aware of its cumulative impact and size. Now, what if life-altering events such as heart attacks or cancer should strike? Would they be prepared? For many, the answer will be no.

The question for today is, how to successfully address CI needs? One way is to package them with benefits that transition into pre-funded LTC coverage around the time of retirement. This would be a CI/LTC combination policy.

The goal of such dual coverage would be to provide healthy insureds with CI coverage during their working lifetimes, and at the same time provide for insurability and pre-funding of LTC insurance, also prior to retirement. These are both readily recognizable needs, yet because of the transitional aspect of the LTC component, individuals wont feel they are paying for a benefit they dont need.

The CI/LTC combination plan could be marketed as a financial planning tool in the affluent marketplace. (See chart for a bullet-point list on such a product.)

The LTC coverage can be packaged so it commences if the insured has not received the full CI benefit by the retirement age. The pre-funding can be full or partial. There are several other design possibilities.

The point is, a combination product that addresses the two morbidity-related risks in one package just might help answer the question about increasing CI and LTC insurance sales. Such a product would definitely address real financial needs, and in a manner that provides living benefits for the continuum of life.

, FSA, MAAA, CLU, is president of Actuarial Strategies, Inc., Bloomfield, Conn. E-mail him at caryl@actstrat.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, March 25, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.