CI Insurance Isnt Just A Stand-Alone Product Anymore
Interest in critical illness insurance is growing. So, too, are the ways of offering this coverage to clients, including an accelerated rider on life insurance policies and other hybrid products.
CI protection increasingly resonates with consumers because it helps cover financial obligations during a serious illness that are not covered by medical or disability insurance.
Thats important since, according to the National Center for Health Statistics, the probability of suffering a critical illness event before age 65 is three times that of death for the average American.
Furthermore, CI benefits can be used for any expenses, not just medical. For instance, the money can be used to pay a mortgage debt, provide funding for future income needs, prevent depletion of retirement savings, or provide “key person” protection for small businesses and partnerships.
Its true that the majority of CI policies in the U.S. right now are stand-alone health products.
However, it is clear from my vantage point in the market that producers and consumers increasingly are opting for an accelerated CI rider attached to a life insurance policy.
This hybrid structure provides a solution that capably answers two needs: 1) the rider may accelerate a portion of the death proceeds when a covered condition occurs; and 2) the underlying life policy still provides a level of death benefit protection.
Adding a CI rider also creates an attractive new twist for life insurance products that have seen limited growth in recent years.
CI riders that accelerate from a life policy offer several advantages.
They are somewhat less expensive than stand-alone CI products, for instance. This is chiefly because of reduced administrative costs.
It should be noted that the probability of a CI payout at an earlier age remains sizably higher than the chance of death. Therefore, the cost for the accelerated rider remains higher than premiums for comparable life insurance. Yet attaching CI rider to a traditional life policy can be a more economical way to provide both types of coverage.
In addition, the premium for this rider may also be lower, if only a portion of the life face value–perhaps 25% or 50%–is accelerated for possible CI needs.
Also, agents who prefer to lead their sales presentation with CI insurance (as opposed to traditional life insurance) can position the accelerated rider as a CI product with death as one of the covered conditions. In this way, adding CI coverage to the traditional life product can bolster life sales.
Incidentally, CI riders that accelerate from a life policy are typically considered life products by the state regulators. Such a classification can help bring CI products to market more quickly.
Life insurance is not the only product that connects easily with CI insurance. Riders for disability insurance policies or long term care insurance policies can also meet CI needs. Here, the base product benefits are not accelerated; instead, the policy pays an additional benefit if a CI event occurs.
Since CI insurance pays a lump sum that helps cover expenses not paid by other insurance–such as child care, time off work, home alterations, travel to care centers or experimental treatments, and other expenses associated with recovery from major illnesses–it is a natural fit with many of these base products.
Interestingly, consumers who cannot purchase enough disability insurance to meet their needs, such as entrepreneurs, can look to a CI component to fill the gap.
When linked with life, disability or long term care policies, the additional benefit CI rider mirrors the stand-alone CI product. However, it delivers some expense savings because it is a rider, not a policy.
Unlike the accelerated life rider, which is viewed as a life product, an additional CI benefits rider is filed as a health product. Thus, it must meet the same state requirements as apply to stand-alone CI policies.
Consumers may prefer an additional CI rider on a life product if they do not want to lose some or all of the death benefit through acceleration.
Actually combining CI coverage with another product, such as long term care, can enable producers to target the coverage to much younger ages. For instance, the average age for purchasing LTC insurance is near 70 while the typical buyer of a CI product is about 40 years old.
Even though CI is still in its infancy in the United States, many versatile ways of offering this product already are available to agents.
It will be interesting to see further innovations as the market for CI products expands. What is clear now is that adding CI coverage offers agents a variety of ways both to build business and meet important consumer needs.
, FSA, MAAA, is regional vice president of critical illness with ING Res Individual Life and Health operation, based in Denver. ING Re includes the reinsurance business of Security Life of Denver Insurance Company. Her e-mail address is Susan.Kimball@ing-re.com.
Reproduced from National Underwriter Edition, June 16, 2003. Copyright 2003 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.