Comparing critical illness and disability insurance: a perfect marriage
This article provides a primer on critical illness and disability insurance and explains how they can best be combined for your clients' benefit.
What would you say is the most valuable asset you posses? If you said anything other than your ability to earn a wage, then we need to go back to sales 101.
Once you enter the work force and begin earning that wage, you are setting a lifestyle for yourself which is dependent upon a steady income stream. Here I want to discuss and show options you have to protect this income stream — have no fear, these plans are able to protect every income, from the minimum wage to the top income earners.
We can show you plenty of statistics as to why these plans are needed, but let’s reduce this to the basic: You need to protect your income.
Before we get into these two plans, I want to put a caveat out there. No matter how you read the information below, in no way shape or form am I suggesting that a critical illness plan replaces the need for disability coverage.
We need to first and most importantly find out what need our client has. We need to find out what their income is, what their monthly bills are and if they currently have any DI coverage. Once we have gathered this information, we can move forward with the process.
We shall begin by looking at the benefits both plans offer.
The disability plan will provide income in the wake of an accident or an illness once a waiting period is satisfied. This benefit is paid directly to you for a set amount of time.
When you purchase a disability plan, you select the following: a waiting period for accident and sickness; a benefit amount which is generally a weekly or monthly amount; and a time frame for benefits to be paid. These choices you make will determine your premium amount.
The plans that will be most affordable have a longer waiting period and a shorter payout period. You can purchase a zero-day waiting period but you will find it to be quite expensive. The benefit amount is generally determined by your income and most times will replace 60 percent of your gross income. Disability plans truly are income replacement. The critical illness plan only pays a benefit on certain catastrophic conditions and these are based on the type of plan you purchase. None of these conditions would fall under the category of an accident. Once you choose a plan — either the lump sum or the indemnity based plan — and are diagnosed with a covered condition, your plan begins to pay you benefit.
If you chose the lump sum plan, your benefit will be paid directly to you in the time frame your policy has set forth — generally two weeks from the time you submit the claim. If you chose the indemnity plan, you will see your benefits once you have received treatment, collected a bill, completed the claim form and mailed it to the company.
The marriage of the critical illness and disability plans
We have now determined how both CI and DI plans pay out their benefits. Our challenge is now to fit the needs and the budget of our client. Most DI plans are sold with a minimum of a 90-day waiting period, so our first consideration would be to cover those three months of no income. We also need to know what the client’s total out-of-pocket costs from their health insurance plan are going to be.
With these numbers in hand, we can make a solid recommendation as to the benefits amounts they will need.
Again, I will stress the point that a critical illness plan does not replace a disability plan. The CI plan is meant to protect your savings account, replace some of the lost income, provide a benefit very soon, and most importantly in my mind, to provide peace of mind.