Does PPACA open the door to Critical Illness?

In 2014 with the implementation of the health insurance exchanges, critical illness coverage can provide a supplement to consumers who are insured under the health insurance exchange’s basicBronze level planwhich will cover the essential health benefits at 60%. Individuals on the bronze plan may consider supplemental critical illness plans as an inexpensive opportunity to fill gaps in their coverage.

Critical Illness is an insurance product that originated in South Africa in the early 1980s. It provides for a lump sum benefit on the diagnosis of a contractually specified insured condition. The premium and benefit structure resembles life insurance. The insured uses the money any way they want to solve their own problem. Typical insured conditions include but are not limited to cancer, paralysis, kidney failure, coronary artery bypass surgery, major organ transplant, multiple sclerosis, blindness, deafness and the loss of one or more extremities.

Popular optional benefits include return of premium and recurrence benefits on a full or partial basis. Recurrence benefits are usually structured to allow for 50%-100% of the original coverage to be paid for a recurrence of a covered benefit trigger. A distinction is usually made between the same diagnosis or a different diagnosis and the length of time between occurrences. Also, some benefits such as Cancer In Situ may be excluded or limited to one occurrence under the policy. According to a 2012 Buyer & Claimant Study conducted by the American Association for Critical Illness (AACII), 47% of new critical illness insurance claims in 2011 began prior to age 55.

Critical Illness insurance addresses economic loss or expense insured’s and their family experience as a result of suffering and/or surviving a critical illness that other insurance does not address. Economic loss or expense primarily consists of loss of income, insufficient income, uncertainty of income.

6 ways CI helps insureds

So when an insured is diagnosed with cancer or multiple sclerosis, suffers a heart attack or stroke, critical illness helps the insured in the following ways:

While critical illness insurance is not a good solution for the loss of partial or total income for the insured it can address the lost income for the family when the insured is recovering or the insured’s spouse needs to help care for the insured during a recovery period.
Additional expenses related to drugs and therapies not covered by medical insurance.
Additional expense related to the modification of an insured’s home and lifestyle enabling them to cope with their condition. Critical Illness provides the funds to modify their home and car to make the quality of life more comfortable.
Additional expenses related with paying for things the insured may not be able to do any longer such as child care or home health care assistance not covered by insurance.
Being diagnosed with a critical illness often results in fear, anxiety, and insecurity related to a shortened life expectancy, and its impact on the insured’s family. Critical illness insurance provides the cash that can relieve some stresses related to the suffering of a diagnosed condition. Lump sum benefits paid out from a critical illness insurance plan can pay the insured’s mortgage or business debits while recovering.
Finally critical illness benefits could provide the funds to address the issue of opportunity loss for the insured. Surviving a critical illness often leaves the insured reluctant to return 100% to their career or business. Critical illness insurance is the only insurance that can provide this benefit.

7 markets for CI

1. Mortgage Market: Packaging Critical Illness with Term Insurance as a mortgage plan. With the advances in medicine a heart attack or cancer diagnosis may not result in death of the insured, they could recover yet lose their home due to a lack of funds during the recovery phase to keep their house payments up. So the question to ask is if you suffered a heart attack, would you rather lose your home or your mortgage?
2. Family Market: After an insured suffers a diagnosis of a covered critical illness, the benefits from a critical illness plan can easier with the cash to pay the family debts, modify their home, and provide child care, home care while providing the ability to have choice and flexibility to solve their related problems. For example in a two income family where one person suffers from a covered condition, losing their income due to the time needed to recover and the other person has to stay home to help them, it could result in the loss of both incomes
3. Singles Market: Critical illness insurance is one of the only insurance plans singles see as having value to provide them independence, choices, and freedom. Single people often don’t have caregivers at home while older people who have accumulated assets for retirement may want to assured that those assets don’t have to be drawn down due to a covered condition they recover from. Of particular interest is the single female market where women tend to be more conscious of health-related issues than me.
4. Self-employed Market: Small business owners, contract workers and professionals have debts that they often don’t have insurance to provide the critical cash to keep creditors at bay and their business afloat.
5. Small business Market: Critical illness insurance can be addressed in a buy-and-sell agreement amongst partners. If one of the partners suffers a critical illness, it is agreed in advance that their ownership is bought out. Moreover critical illness insurance can be used to provide the cash to compensate and/or replace a key employee who is diagnosed with a covered condition.
6. Large Business Market: Critical Illness insurance can be used as an executive perk. The lump sum benefit provided upon the diagnoses of a covered condition can be used to retire the executive since changes are even fi they return to work their productivity may not meet the company needs.
7. Group Market: For industries that are not eligible for Long Term Disability policies critical illness is an alternative plan. Additionally critical illness insurance can be offered as part of a cafeteria plan which could be more attractive to younger workers than life insurance.

Why should brokers/agencies consider marketing CI?

There are several reasons to consider representing the Critical Illness market:

1. Replace income from declining sales of life insurance or enhance sales of life insurance with companion benefit to enhance value of life insurance
2. Cross generation market
3. Earn more wallet share in markets and policyholders homes
4. Position service as offering “living” benefits
5. Retention of multiple policy in-force business in the home

The AACII and Gen Re conducted their 2013 survey among participant companies about the sales of critical illness insurance and found $308 million in new premium sales for the year 2012. This represents an astounding 90% increase over reported 2011 sales figures.

Premiums are affordable across most age groups and are best when packaged as part of a financial program such as a health insurance program, mortgage program or an alternative to health insurance for young singles.

For most people, the best strategy is to purchase the best health insurance policy that they can comfortably afford. They can pay out of pocket what they can afford to fix or replace; then insure what they can’t, and they want to do so in the most cost-efficient way possible.

Health insurance premiums are tax-deductible and, starting in 2014, may be subsidized according to their household income. Critical illness insurance policies are not eligible for federal subsidies, and people who receive benefits may also be required to pay tax on their benefit.

How popular are critical illness plans becoming? Forbes Magazine ran an article last year that illustrated some of the market examples in this article. In their article they mention policy cost and benefits of critical illness insurance as an alternative.

And as the recent headlines demonstrate people are looking just for that, an alternative solution to their most pressing concerns: health care.

• More from Lloyd Lofton: Helping prospects ‘buy’ life insurance – A primer for newbies

Lloyd Lofton, LUTC, of American Eagle Financial Services, LLC, in Marietta, Ga., has 30 years of door-to-door, call center, business-to-business and needs-based selling experience. He is a successful business leader who has led large sales distributions producing $50 million or more a year in sales, who has led recruiting efforts that resulted in hiring more than 2,000 sales professionals in one year and who has trained hundreds of managers, from field sales leaders to executive level leaders. You can learn more from his web site: lloydlofton.com or email at[email protected]