Disability income insurance is a key tool in the arsenal of many insurance professionals, though it does have its limitations. However, if leveraged in the right way and aligned with client needs, critical illness insurance can bridge these limitations and provide a benefit to a client at a time when he/she needs it the most.

Consider the DI policy’s elimination period. Most if not all DI products have an elimination period of 30-180 days. Unfortunately, living expenses do not wait. During this time, the client may not have income to cover monthly expenses and may have to dip into savings, retirement accounts or cash value insurance. In addition, the illness may require funds to cover costs not covered by medical insurance–e.g., deductibles, co-payments, specialists, experimental treatments, and vehicle and home modifications.

DI contracts tend to cover only 55% to 65% of an individual’s base salary. For instance, if a physician suffers a stroke and cannot return to work, his $400,000 salary will drop to $260,000 after the elimination period has ended. Many MDs in this situation would be hard pressed to find the funds to cover expenses, let alone the mortgage, college costs, retirement funding and current lifestyle. As for someone in the middle market, living on a fraction of base pay is challenging; if commissions or bonuses are part of household income, it’s downright impossible.

Why consider CI for this exposure? This is supplemental insurance that is designed to help cover the additional expenses associated with critical illness, regardless of existing medical or DI insurance. Upon diagnosis of a covered condition, a CI policyholder will receive a lump sum that can be used for any reason.

Covered conditions in most CI policies include cancer, heart attack and stroke. Many policies cover other conditions, too, including blindness, loss of limb, organ transplantation and severe burns.

Under a CI policy, the insured collects the full amount of coverage even if he or she makes a full recovery. There may be tax advantages, too. The distribution under a DI contract can be taxable. But CI benefits, assuming the premiums are paid for with individual funds, are not.

A good place for advisors to uncover markets is to focus on the current book of business. This contains warm leads, especially to those who already purchased DI from the advisor or who have turned down the idea of DI coverage.

With a little education and some personal visualization (see chart below), it’s easy for many clients to embrace the concept of a lump-sum CI payment acting as a bridge for DI. In addition, many advisors report that once the case is made, understood and accepted by the breadwinner, chances of selling a similar or slightly smaller policy to the spouse are 50% or better.

Where the CI sale really makes sense is in the workplace, particularly with small businesses and their owners.

A CI policy on a small business owner’s partner can ensure the owner’s ability to continue to pay the partner’s salary; it can ensure that, despite a partner’s absence, his or her capacity for production can be covered, keeping the business on track financially.

The small business also provides advisors with access to the employees, many of whom already have bought group or voluntary DI coverage. These workers are a captive audience, especially during annual or open enrollment periods, and they can more easily tolerate paying premiums through payroll deduction. Most CI policies also have additional benefits, including coverage for preventative screenings, that complement DI and make them attractive to employers and employees alike.

There’s an old saying: If you want to teach something, tell a story. So, explain CI in terms of real life stories. Tie its benefits directly to a bill, a loan, a whirlwind trip of Europe–or some other financial goal. Find out what the client values, and demonstrate how CI can support those values.

The biggest obstacle? Awareness. CI is a niche product that did not exist before, and the very concept is still quite new in the United States. It is not a product that can be mass marketed, at least for now. No one wakes up saying, “Today I need CI insurance.” So, personal, face-to-face delivery is required to demonstrate CI’s value. Introduce it as a supplement to DI and as part of a bigger insurance and financial picture. Success will surely follow when advisors educate themselves, help clients visualize their own CI story and use DI as a complementary vehicle.

Stephen Appleyard is senior vice president-accident and health at AIG American General, Houston. Tim White is vice president-business development at the Independent Advisor Network, a member of AIG American General, Houston. Their e-mail addresses are, respectively: Stephen.Appleyard@aig.com and Tim.White@aig.com.

CI insurance needs to be marketed. No one wakes up saying, ‘Today I need critical illness insurance.’

Four Dimensions

The CI-DI Link

1. Use CI to provide lump-sum benefits during elimination periods of existing DI contract.

2. Present CI as a new sales idea to clients who said “no” when approached for DI.

3. Offer CI to those whose occupation cannot be underwritten for DI (i.e., high-risk occupations or those based on 100% commission).

4. Layer the CI on top of existing DI for higher income clients who cannot secure sufficient DI coverage.

Source: Stephen Appleyard and Tim White, AIG American General, Houston.