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August 18, 2004 at 08:00 PM
In nearly 30 years of advising clients about their estates, we have not seen critical illness coverage very often in the clients insurance portfolio. There can be several reasons for this.
First, CI insurance is still adversely affected by its early reputation as dread disease insurance. In that form, the benefit was tied to reimbursement for medical expenses, such as for cancer or heart disease. The insurance was sold with the idea that major medical p
olicies may not cover treatment that was advisable or desired. But, so the sales talk went, cancer or heart attack insurance would cover the treatmenteven if it might otherwise be considered as experimental, and not covered, by the major medical carrier.
In at least one situation about which we know, this turned out to be the case, and the client felt a great moral debt to the agent who sold this insurance to her. She told me that she would have been lost without that insurance.
The large majority of clients, however, do not have this insurance. The reason usually is that they believe their major medical insurance is sufficient. Stated another way, the clients believe it is unlikely that they will suffer from one of the dread diseases and that, if it does happen, they will have little or no uncovered medical expenses.
Much has been written about this type of reasoning, but in the final analysis, the decision is a personal one for the client. There is nothing inherently right or wrong about it. If the CI policy puts the client at ease, then the purchase makes sense.
Another reason clients may not purchase CI insurance is that they are comfortable with the thought that their assets are substantial. They believe they can provide for themselves, even if disabled. In fact, almost all of our estate planning clients own disability insurance.
A final reason why CI coverage has not been readily accepted may be the uncertain tax status. This coverage often provides a lump-sum payment upon diagnosis of the disease. A medical expense for the disease is not required. So, CI coverage does not fit nicely into the Internal Revenue Code, where deductions and exclusions may depend upon insurance being paid for medical expense reimbursement.
