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Assuming the healthcare reform legislation is not repealed and replaced, its implementation will provide comprehensive health care coverage for more Americans.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.