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November 02, 2005 at 07:00 PM
Could critical illness insurance be as useful to baby boomer executives and professionals as it is to the blue-collar workers on the shop floor?
Advisors who sell the product say it can be useful to moderately affluent and even affluent boomers as well as to moderate-income boomers.
“This is not health insurance,” says Alphonso Franco, CEO of the Critical Illness Centre, Victoria, B.C. “It’s financial insurance. If you live long enough, you get one of these illnesses no matter what.”
Other advisors are skeptical and say most clients should stick to products such as group health insurance, disability insurance and long term care insurance.
Franco, who organizes an annual critical illness conference series, says only about 35 of the 1,000 participants at a typical conference come from the United States. The rest are from Canada or other countries.
Although at least 32 carriers claim to sell CI insurance in the U.S., today, fewer than a dozen seem to be actively in the market, Franco says. He believes U.S. interest in critical illness insurance is soft because, with some exceptions, the U.S. products tend to be more conservatively designed than the products sold in countries such as Japan and the United Kingdom.
One major difference is the coverage termination age, which tends to be 70 or less in the United States but may occasionally run as high as 100 in Canada, Franco says.
Once U.S. insurers make the kinds of CI insurance products sold in the rest of the world available in the U.S., “it will be the biggest selling product in the United States,” Franco predicts.
Critical illness insurance is a younger cousin of cancer insurance.
The typical cancer insurance policy pays a set indemnity benefit when the insured is diagnosed with most forms of cancer.
Dr. Marius Barnard, the brother of the famed South African heart surgeon Dr. Christiaan Barnard, invented the critical illness insurance market in 1983, in response to concerns about the financial difficulties that many heart transplant recipients faced.
The typical critical illness insurance policy pays a similar kind of flat cash benefit when the insured is diagnosed as having suffered a serious form of cancer or one of several other dread conditions, such as heart attack, stroke, multiple sclerosis or the need for a major organ transplant.
ING Employee Benefits, Atlanta, a unit of ING Groep N.V., Amsterdam, is an example of a large carrier that has entered the voluntary CI insurance market.
When insurance advisors are deciding whether voluntary critical illness coverage is suitable for affluent boomer clients, “they’ve got to look at the needs of each individual separately,” says Curt Olson, president of ING Employee Benefits. “But I think it’s getting to be more interesting to boomers. It’s covering conditions that they’re starting to worry about facing.”
In the worksite market, typical face amounts range from $5,000 to $100,000, with an average face amount of about $20,000, according to a presentation that Fred Rodenbach of UnumProvident Corp., Chattanooga, Tenn., made in February at the Benefits Marketing Renaissance, a conference organized by the Benefits Marketing Association, Twinsburg, Ohio.
Some carriers offer small amounts of guaranteed issue coverage, but simplified issue underwriting is more common, according to Rodenbach.
Franco says boomers in the U.S. individual market once could get $2 million in coverage. Now, the typical maximum is $1 million, and agents may have to justify the need for that much coverage, he says.
Insurers have been making serious efforts to sell critical illness insurance in the U.S. for only a few years, Franco says.
In the U.S., the product still suffers from attacks that consumer advocates made against cancer insurance back in the 1970s.
Years ago, consumer advocates scoffed at the idea of buying a product that would protect the purchaser against one serious illness, or several. The consumer advocates argued that consumers should buy good health, life and disability insurance, then use personal savings to protect themselves against the risk of serious illness.
But critical illness insurance experts note that times have changed since the 1970s, when affluent breadwinners were usually men, and wives and grown children were available to act as nurses.
Even under the best of conditions, “everything increases when you have an illness,” says Joan Rhodes, president of Employee Benefits Specialists Inc., Pleasanton, Calif., who owns a CI policy.
