The Timing Is Right For Critical Illness Insurance In The U.S.

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Any study of critical illness insurance on a global basis provides compelling evidence that it is and has been a leading seller in other countries, among them South Africa, Australia, England and Canada.

What are its sales prospects in the United States? Favorable. In fact, given that over 40 individual, worksite and group insurers are already selling CI insurance in the U.S., the product is positioned to be a big seller here.

Before seeing why, lets review what CI insurance is. This is an insurance product that pays a lump-sum benefit upon the diagnosis of a critical illness such as life-threatening cancer, heart disease and stroke. Other covered conditions often include organ transplant and partial payments for angioplasty and bypass surgery.

A compelling reason or event usually precedes a purchase and, in turn, motivates the consumer to buy.

For instance, in the United Kingdom, cutbacks in government unemployment programs and socialized medicine became catalysts for increased mortgage-related sales of CI insurance. (The majority of CI policies sold there are mortgage-related and accounted for 53% of new CI sales in 2000.)

In Canada, socialized medicine seems to be the driver for CI insurance sales growth. The coverage debuted in that country in 1995, and now approximately 28 Canadian companies are offering it.

We have already said that the product is starting to make inroads in the U.S. market. But what compelling reasons are driving this trend? The two major drivers are health care and financial liquidity.

Regarding health care, here are factors that are coming into play: People here are living longer. New pharmaceuticals and medical ingenuity have increased life spans, to the point that the typical 65-year-old woman can now expect to live to age 87 and her male counterpart can expect to live to age 83. As a result, the baby boom generation has become very concerned about the financial aspects of living longer.

Further, in this era of consumer empowerment and choice, consumers are fending for themselves in such areas as managed health care, financial planning and retirement. A key impetus for this is the cost-control efforts of employers, who are now shifting more of the cost burden for health insurance to employees through higher deductibles, co-payments and other arrangements.

Though not a solution for health care cost-shifting, CI insurance is definitely a product for this new era, because it complements existing health insurance coverage.

Why? Because this insurance is designed to fill gaps in coverage. Should a covered catastrophic illness strike, for instance, the insured knows he or she will have money from the CI policy to pay for items and services not ordinarily covered by the basic health care policy. Such extras include costs for experimental drugs, home health care, education, and day-to-day living expenses.

Now lets consider financial liquidity, which is the second key factor favoring greater CI sales in the U.S.

It is important to remember that two-thirds of the cost associated with having cancer is not covered by medical insurance and that the number one reason for house foreclosures or bankruptcy within the U.S. is unexpected medical expenses. Access to adequate liquidity is the solution.

For example, Bob, a 49-year-old married man, father of three, has been recently diagnosed with cancer. He would like to seek alternative treatment, but such is not covered by his health insurance. This creates a financial dilemma for Bob.

Consider: Bob has many financial responsibilities, including a home mortgage and college tuition. Due to the recent stock market volatility, his 401(k) plan at work has lost approximately 50% of its value, and his personal portfolio hasnt done much better. In time, Bob hopes the values in his 401(k) and portfolio will rebound, but since they are still at all-time lows, he does not want to tap into the 401(k) or sell stocks to cover his extra cancer-related expenses.

If only Bob had a cushion of financial security for the unthinkable, he could then concentrate on his health, without concern for his financial liquidity. Such a cushion could be a CI policy, if he owned one. It would give him added financial protection at a time when he faces two challenges to his financial independence: major illness and financial market volatility.

Because of the health care and financial liquidity issues that face many Americans today, I believe the timing is right for CI sales to take off in the U.S. The health care and financial concerns are compelling reasons for American consumers to buy the product.

As with many insurance policies, CI insurance offers coverage that buyers hope they will never to have to use, but it is coverage that meets the growing demand for empowerment, choice and protection for lifes uncertainties.

Daniel R. Pisetsky is managing director of US Living Benefits, Manchester, Conn., and founder of the National Association for Critical Illness Insurance, Washington, D.C. His e-mail is uslb@uslivingbenefits.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 28, 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.