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What's Next for the US Critical Illness Market?

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What is Critical Illness Insurance (CII) and why do we need it? CII pays a lump sum upon the diagnosis of a critical illness condition. Each year, the three most frequently diagnosed CI illnesses (the “big 3″), comprising approximately 75% – 80% of CI conditions, are life threatening cancer, heart attacks and stroke. Depending on the policy which is selected, other conditions may be covered such as: renal failure, organ transplant and paralysis, as well as partial benefits for non-invasive cancer, angioplasty and coronary artery bypass. In recent years, additional occurrence, recurrence and wellness benefits have been added to enhance the products.

Critical illness product designs consist of three types: stand-alone, acceleration and rider. Stand-alone CII is the dominant seller in the U.S. Acceleration CII is linked to a life product. In the event of a critical illness, a person receives either part of or the entire principal, thus reducing or eliminating the death benefit. CII riders may be added (usually in small amounts) to disability insurance, mini-meds and life products, providing additional coverage.

There are over 40 carriers selling worksite, group, and individual products. Approximately 80% of U.S. sales take place in the worksite arena. The sales “sweet spot” is employees 30-50 years old, with an average voluntary sale around $25,000. Simplified underwriting is generally used for policies under $50,000 and guaranteed issue may be offered with amounts less than $15,000, depending on the size of the employee group.

Individual sales have not gained momentum in the United States. There are only a few carriers that provide individual products up to a $500,000 maximum. In contrast, the United Kingdom and Canada sell predominantly individual products, with an average sale of $100,000. These products are sold as mortgage protection in the UK and as asset protection in Canada.

Assuming the healthcare reform legislation is not repealed and replaced, its implementation will provide comprehensive health care coverage for more Americans. The need for additional cash-on-hand in the event of a catastrophic illness, however, still remains. Expenses associated with any serious illness can be mind-boggling, sometimes triggering home foreclosures and bankruptcies, even if the person is covered by medical insurance. This gives rise to a number of troubling questions that make the case for CII coverage a compelling one: Where will the money come from when I’m not working? Who will care for the children? How will I pay the mortgage?

With this in mind, the new frontier for critical illness sales is in individual distribution. The sales potential for agents, financial planners or Internet sales, in writing policies greater than $50,000, exists for those who develop an appropriate product design and marketing approach.

Relative to product design, stand-alone, rider and acceleration products continue to work well within the worksite and group distribution channels. The common denominator is small amounts (<$50,000) sold with simplified or guaranteed issue underwriting.

Individual life insurance ownership is at a 50-year low according to LIMRA, which makes now the right time to tap that market with a combo life/CII product. This product would focus on life amounts above $50,000 and require non-med or full underwriting.

The marketing of the combo life/CII product will determine its success, of course. First, the primary sale will always be life insurance. Agents will always sell their clients life policies that meet their needs. Usually, for larger life policies, the client will go through a thorough underwriting process, which may include health history questions, blood testing and a physical.

Within the life application, any additional CII questions could be included to determine eligibility. If the applicant is approved for life coverage, the underwriter can determine eligibility for CII and an offer for life/CII could be done concurrently. An agent can easily explain the product and determine if the client desires the coverage along with the life product.

The additional CII coverage does not jeopardize the underwriting process or the life sale. Combining life insurance with CII not only provides an additional living benefit for the client, but it can trigger quantum CII growth, providing an additional commission source for the agent. The flexibility of combo life/CII makes it an ideal product geared to professionals, business owners or individuals alike, who desire larger amounts of life coverage and critical illness insurance. Another huge benefit: combining these products could provide a much-needed paradigm shift in how individual life is marketed.

We all have dreams, plans, and hopes for a better tomorrow, but unfortunately, a critical illness can reduce those dreams to ash. With the right kind of outreach, critical illness insurance can yet be associated with life in the same way as life insurance has been associated with death. And while that can be a boon for agents, the bigger and more important impact will be felt by those who need it the most: our clients.


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