As the critical illness insurance market continues to evolve in the United States, carriers are adding new features to the products. We’ll look at some here and then explore where this business may be going.
First, a refresher: Standard CI designs consist of a stand-alone health product, a rider on the chassis of a disability or life product, and an acceleration product that combines CI with a death benefit. The products are sold in the individual, worksite and group employee benefits channels, most of them paying a 100% lump-sum benefit should 1 of 3 core conditions occur: life-threatening cancer, heart attack and stroke, which together comprise approximately 75% of CI claims. Some policies pay a 100% lump-sum for other diagnoses, too, such as organ transplant, renal failure and paralysis. Still others pay partial benefits for conditions like cancer in situ, coronary bypass surgery and angioplasty.
The newer designs have added these features:
CI buckets: Here, the CI conditions are categorized into buckets or groups, and the product pays out for more than one CI if the subsequent CI falls into a bucket not already used. Example: A $50,000 CI with 3 conditions, 1 in each of 3 buckets, could have a potential payout of $150,000.
Recurrence: Some carriers now pay upon additional occurrence for the same CI–say, a subsequent heart attack (usually after a specified period).
Group chassis design: Worksite products may be designed on a group chassis to provide a carrier with rate flexibility and ease of compliance with state regulations. These products offer issue age rates along with limited portability.
True Group CI: Some carriers offer true group CI with guaranteed issue, along with an option to purchase additional amounts, subject to simplified underwriting. Group rates are usually guaranteed for 1-2 years. The product may provide limited as well as total portability.
Activities of daily living (ADLs): Some carriers now also offer “loss of independent living” as a CI condition. To trigger this, the insured must be unable to perform at least 2 of 6 ADLs (bathing, dressing, toileting, transferring, incontinence and eating)–a feature that provides a link between CI and long term care insurance.
CI policies still have 2 key areas of concern, however.
One is that CI products do not offer an inflation option. Some worksite products may offer employees an option to increase their benefit annually by deducting a specific amount out of their paychecks to cover the higher cost. But, given that CI does not offer the simple or compound inflation options common to many LTC policies, the value (purchasing power) of the CI lump sum declines over time.