For some clients, preparing for the future seems only natural. Others will buy insurance for their cell phones and never think to purchase protection against the financial havoc that critical illness can wreak.

This is a risk we simply can’t afford to take. Unfortunately, many of us will be diagnosed at some point with a critical illness, such as a heart attack, stroke or invasive cancer. While our chances of survival are fairly high, such incidents or illnesses can trigger significant unexpected expenses, from medical bills to home modifications to lost wages and more.

In fact, according to the American Association for Critical Illness Insurance, nearly two-thirds of U.S. bankruptcies are the result of medical expenses, and 78 percent of persons filing for bankruptcy had health insurance when first diagnosed. Unless clients are prepared, their financial health can be dramatically impacted, adding to their stresses and potentially impacting their healing processes.

Critical illness insurance can help protect against the financial burden of life’s uncertainties. Further, sales of CI policies can help agents recoup income lost due to the recent restructuring of commissions on major medical plans from most carriers.

CI for Individuals

A CI policy can provide a lump sum payment in the event that the client develops a covered critical illness during the life of the policy. Given the likelihood of that happening, agents can feel confident in presenting CI coverage as more of a necessity than an optional addition to clients’ portfolios. Consider that:

  • Approximately 90 percent of disabilities are caused by illnesses, not accidents, according to the Council for Disability Awareness’ 2010 Long-Term Disability Claims Review
  • Each year, an estimated 1.25 million Americans suffer a heart attack and approximately 66 percent of them survive, according to the American Heart Association’s Heart Disease and Stroke Statistics report, updated 2011
  • In the most recent three-year period for which data is available, 7 million Americans age 20 or older suffered from a stroke, and many survivors had permanent, stroke-related functional disabilities, according to the AHA report
  • An estimated 1.5 million Americans were diagnosed with cancer that year, according to the American Cancer Society — and the average five-year survival rate for cancer is 68 percent, per the most recent figures available from the National Cancer Institute.
  • Yet, 67 percent of workers in the private section have no long-term disability insurance, according to the Social Security Administration’s Fact Sheet of March 18, 2011.

A CI policy, paid out at the time of diagnosis, provides funds that can help cover costs such as replacing some of the patient’s or spouse’s income, choosing preferred hospitals and physicians, receiving treatments (including experimental drugs or therapies) or specialist services not covered by traditional health insurance plans, mortgage payments or outstanding bills, and/or expenses for modifying a home or vehicle for special needs.

CI in the Workplace

In the workplace, CI can serve a two-fold need: as a gap-filler for high-deductible medical plans and as a component of succession planning. The incapacitation of a business owner or senior management team member due to critical illness can create significant strain on an organization, and funds from a CI policy can provide a financial cushion while the ill person recuperates or the workload is transitioned to another employee. CI insurance is a win-win, helping minimize risk for both the business owner and employees.

Improvements in CI

In recent years, many CI policies have been structured with new product features, such as a return-of-premium benefit, multiple protection period options and simplified definitions of triggering points for claims. Policies offered in varying increments allow clients to customize their coverage to align with major life events, such as a child attending college or business succession planning. With Americans living longer, having a benefit that will pay for the loss of independent living could help in long-term care planning.

Benefits to Highlight

Receiving a lump sum distribution upon diagnosis of a covered illness gives clients the freedom to focus on getting better rather than the financial burden that could develop while they are trying to recover from the illness. This is an important difference between CI coverage and disability insurance, which in most cases would require an extended waiting period before payments will commence.

In a family unit, where one spouse generates the income and the other keeps the home front running, there could be serious challenges when the person at home comes down with an illness. Not only are there potential expenses that could arise, above and beyond what their health plan covers, but the individual from the workplace may have to take time off to assist at home. Many companies will now provide CI coverage for the non-earning spouse to relieve those financial pressures.

It is a sad fact that most individuals do not find out what their health insurance doesn’t cover until an event happens, a key reason why critical illness insurance should be a part of the financial planning process. The question that agents would be well-served to ask is, “How can you afford not to have CI protection?” Don’t be the second person to bring this to the attention of clients: It will be too late. Someone else will have made the sale.

Bob Clancy, CLTC, is the sales vice president for the Western United States, for LTCI and Accident and Health Sales, American General Life Companies, where he supports all of the organization’s distribution lines. He can be reached at bob.clancy@aglife.com.