Bridge the Gap With Critical Illness Insurance

Few products can help bridge a gap quite like critical illness insurance.

This relatively affordable solution has the potential power to help cover medical costs not covered by traditional health plans, facilitate small business continuity from one generation/partner to another in the event of a covered illness, and generate incremental streams of revenue for financial professionals. Keep reading for insights on the vital need for, and key role of, today’s critical illness protection products.

Related: 7 ways to win the hearts of critical illness insurers

The need

Critical illness insurance provides a lump-sum payment for the occurrence of one or more covered medical conditions, subject to policy terms and specifications, including limitations and exclusions. The contracts differ from carrier to carrier, but this solution generally is designed to empower policy holders to choose the care and treatment they prefer if they undergo a major organ transplant or are diagnosed with another qualifying event such as a heart attack, invasive cancer, stroke, kidney failure, coma, paralysis, severe burn, and/or the loss of sight, speech or hearing. The stats related to these conditions are compelling.

In fact, as the American Heart Association and the American Stroke Association have shared, about 85.6 million Americans are living with some form of cardiovascular disease or the after-effects of stroke. Furthermore, although boomers and seniors are most prone to strokes, research published recently by the two nonprofit organizations shows that the risk to younger generations has increased dramatically. Compared with the 1995-1999 period, stroke rates in 2010-2014 for the studied population rose 147 percent in people ages 35-39 and doubled in people ages 40-44.

As the study’s lead author, Joel N. Swerdel, relayed in a related press release, “People, especially those under 50, need to realize that stroke does not just occur in the old, and the outcome can be much more debilitating than a heart attack” — leaving them living for another 30-50 years with the ramifications.”

Additionally, a recent update from the National Cancer Institute shared that the number of people in America living beyond a cancer diagnosis is expected to rise to nearly 19 million by 2024.

Many of these survivors’ conditions may constitute critical illness as spelled out in a critical illness insurance policy and the afflicted people may need help paying for the costs of care.

Related: Federal regulators may try to kill critical illness insurance

But even having Medicare, with a Medicare gap plan, does not necessarily equate to affordable cancer care, as a Medscape article shared recently: “New findings show that depending on the type of supplemental Medicare coverage, cancer patients may find themselves with significant out-of-pocket (OOP) expenses. For beneficiaries insured by traditional fee-for-service Medicare but without supplemental insurance, mean annual OOP expenses were $8,115.”

A lump-sum benefit from a critical illness insurance policy can provide immediate payment to the eligible insured on diagnosis. (Photo: iStock)

The lump-sum benefit

This benefit may help with direct costs, such as deductibles, co-pays and out-of-network medical expenses, to bridge the gap between what the client’s health insurance plan will pay and actual expenses incurred for the best specialists, physicians and hospitals, and experimental drugs or therapies. 

However, clients have the freedom to use the policy payout as needed. Therefore, it also can help replace lost income, cover transportation and lodging for non-local health treatment or even provide for everyday living expenses, such as a mortgage, bills and debts.

Also, as a general rule, if insurance premiums are paid with after-tax dollars, then the benefits from the plan are received income-tax-free, based on current federal income tax laws. Be sure to tell the client, however, to consult a qualified tax expert about his or her specific situation.

Related: 3 opportunities in the health gap market

Allison’s situation

Consider Allison, a hypothetical 46-year-old client, and her situation. After Allison and her husband divorced, her first priority was ensuring a bright future for her 11-year-old son Jeremy, who aspired to become an architect. Month after month, Allison set aside funds to pay for her son’s education. She also purchased a 10-year critical illness insurance policy to ensure that if she ever were faced with a critical illness, her son’s college savings would be protected.

When Allison suffered a stroke, her employer-provided major medical plan covered most of her expenses, but others, such as modifications to her home to help her get around, had to be paid out of pocket. Fortunately, the $75,000 benefit from her critical illness policy helped her address these expenses without tapping into her savings. Allison’s recovery was slow and arduous, but years later, she was able to watch her son follow his ambitions and enter the college of his choice.