Study quantifies the risks for critical illness
By Cathy Miller, Business Writer
The age group with the highest percentage of individuals with no insurance is also the most likely to have a critical illness before age 65. That’s according to a recent study published by the American Association for Critical Illness Insurance (AACII).
Study Findings
Prepared by Milliman, Inc., the study reported the likelihood of men and women under age 65 of suffering a critical illness before the age of 65. The following highlights key findings:
- 25-year-old male – Non-smoking: 24% chance; Smoking: 49% chance
- 25-year-old female – Non-smoking: 21% chance; Smoking: 36% chance
- 35-year-old male – Non-smoking: 24% chance; Smoking: 49% chance
- 35-year-old female – Non-smoking: 21% chance; Smoking: 35% chance
For purposes of the study, the definition of critical illness was life-threatening cancer, heart attack and stroke. Most critical illness insurance policies cover those same illnesses.
Why Critical Illness Insurance
The first critical illness insurance policy sold in the U.S. was in 1996. AACII reports that today approximately 600,000 individuals have critical illness insurance policies. Recently, there has been a resurgence in sales for this type of insurance. There are a number of reasons for the increased popularity of this insurance product.
- Advances in medical treatment increase the likelihood of surviving a critical illness
- The high cost of recovery drains savings
- Out-of-pocket costs are not covered by health insurance
Another strategy gaining popularity for critical illness insurance is their use as a supplement to a Health Savings Account (HSA). Critical illness insurance pays a tax-free, lump-sum cash benefit for covered illnesses. The benefit helps defray the out-of-pocket expense of the high deductible associated with HSAs.
How the covered individual uses the cash benefit is totally up to the individual. Surviving a critical illness has a high cost. Rehabilitation, caregivers, expenses not covered by health insurance all add to the financial strain for the survivor and his or her family.
How Critical Illness Insurance Works
Offered to groups and individuals, critical illness insurance helps fill the gap between traditional health insurance and the out-of-pocket expenses incurred from a critical illness.
Originally, most of these policies covered three critical illnesses: cancer, heart attack and stroke. Many agents think of critical illness insurance as cancer insurance. Cancer insurance is still available but the coverage is for a cancer diagnosis only.
Today, many policies expanded the covered illnesses beyond cancer, heart attack and stroke to include coronary artery (bypass) surgery, kidney failure, major organ transplant, paralysis, loss of sight, multiple sclerosis, heart valve replacement and surgery of the aorta.
It is important for agents to understand the coverage for critical illness insurance. When first introduced, misunderstandings regarding pre-existing conditions, survival periods and reoccurrence of diseases left some very unhappy clients.
Common characteristics include:
- Considered an accident and sickness policy
- Coverage for most range from $10,000 to $50,000 (lower and higher coverage available)
- Rates are generally guaranteed from three to five years
- Pays a lump-sum, tax-free cash payment
- May be tax deductible for businesses (for example, when purchased for key executive)
- Typically has a guaranteed issue for group policies
- Contain a survival period – number of days insured must survive following diagnosis to receive benefit
- May have an option for return of premium that pays to survivors if the insured dies while the policy is in effect and no claim is made (for example, the insured dies during the survival period)
Insurance carriers recognize the increasing popularity of critical illness insurance. As a result, many of the newer products are more flexible than older policies. New features include a benefit for recurring illnesses and incentives for preventive and wellness treatments.
Critical illness insurance is often a good supplement to health, disability and life insurance for clients. Insurance agents benefit from understanding this insurance product in developing protection strategy for their clients.
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