A primer on critical illness insurance
This article provides producers with a comprehensive and consumer-oriented explanation of critical illness insurance that can be used to help clients understand their options.
Critical illness plans are designed to provide a source of income for the insured when they are diagnosed with a critical illness, such as cancer, heart attack, stroke and renal failure. This insurance pays a cash benefit directly to the insured upon diagnosis of a covered condition. This type of plan could be considered a living benefit. The benefit amount can be used to pay for expenses, such as:
- Car payment
- Child care
- Deductible on health insurance
- Extended convalescence
- Travel expenses
- Treatments not covered by traditional health insurance
Who needs this coverage?
Everyone. Based on statistics, we are more likely to survive cancer, heart attack and stroke today due to advances in medical technology.
Smokers are in a class by themselves and should not think twice about purchasing this coverage. Genetics also play a large role in one’s chances of being stricken with cancer, heart attack and stroke.
Ask yourself the following questions: Has any family member ever had cancer, heart attack or stroke? Has any friend or co-worker ever had cancer, heart attack or stroke? Now ask yourself this: If you were diagnosed with cancer, heart attack or stroke, could you pay your bills for six months? Would you rather have a get well card or a check to cover these expenses? This coverage is meant to protect your savings account and provide peace of mind.
What type of plans are available?
Currently, and I use this word because of the rapidly expanding marketplace for these plans, you have a specific disease plan that generally covers one condition such as cancer; or a critical illness plan that generally covers cancer, heart attack and stroke (but could also cover up to 18 different conditions). You will then have to select either an indemnity plan, which pays a benefit amount based on treatment received, or a lump sum benefit, which pays upon diagnosis. There are also life insurance plans that have a terminal illness or a living benefits rider.
You must read and understand these riders before purchasing these plans. Generally, the terminal illness rider means you have to be diagnosed with a terminal condition and have less than 12 months to live; only then may you file a claim.
Life insurance with a living benefits provision covers critical illness and chronic disease. The benefit amount you may take against the policy amount is based on the severity of your condition. Return of premium provision
Most companies offer a plan that allows you to add a return of premium rider. This rider generally has a set period of time, for example, 20 years. If you pay all of your premiums, you will receive all premiums paid, less any benefit amount you may have received. Some plans may pay a prorated return of premium. Be sure to check specific plan for details.
When should I purchase this coverage?
Now. Most products on the market today offer these plans to people ages 18 to 65, with some companies actually making it available to age 85. The younger you are when you purchase the plan, the less expensive the cost. You need to be aware that some plans reduce your benefit at age 65 and some terminate coverage at age 75.
Why do I need this coverage?
Most people will say that their health insurance provides enough coverage. The health insurance pays the doctors, the hospitals, etc., it does not cover the mortgage payment, your regular monthly bills and your loss of income while recuperating. Statistics show that smokers have a much greater chance of contracting a critical illness prior to age 65 than non-smokers. This coverage is necessary to anyone who uses tobacco products.
How do I determine the amount needed for my benefit?
This coverage was designed to offer a cash benefit which you can use as you choose. This benefit amount is meant to protect your savings and provide peace of mind. With an indemnity plan, you do not select a benefit amount as you are paid a benefit for each service rendered. These services typically include hospital confinement, radiation, chemo treatments, etc.
The lump sum plans pay a cash benefit directly to you upon diagnosis. Here is where we need to determine what amount fits your specific needs and budget. The rule of thumb is to cover six months of bills, at a minimum. You may also need to cover the deductible and co-insurance of your health plan. Together, this will provide you the benefit amount needed.
Where do I purchase these plans?
As this type of coverage becomes more visible and people are made aware of the benefits, then everyone will begin to offer this product. We feel the agent plays a tremendous role in explaining the benefits of plans available and determining what is best for you. An agent is the professional in this picture and should be trusted to help.
There are plenty of online sites making these plans available, but we still promote the use of a professional agent. You may also purchase plans through your workplace and you should do your homework as to plans available if no agent is available to help. Associations and credit unions are another good source for purchase. Do I qualify for coverage?
Most offerings are "simplified issue,” and they are generally for lump sum amounts under $70,000. Simplified issue is generally a few medical questions and with all “no” answers, you qualify. Benefits over $70,000 are subject to the underwriting process. You may find “guaranteed issue” plans in the group setting and it is exactly that, guaranteed issue.
You may even qualify if you have been diagnosed in the past with cancer, heart attack or stroke.
Am I over-insured?
Let me ask these questions: How many benefit dinners have you seen being held in your community for someone that does not have enough money to cover their bills when they have been stricken with a critical condition? How many families have you seen struggle with their finances due to medical bills from a critical illness? How many folks have you seen lose their home due to being diagnosed with a critical condition?
These plans are relatively inexpensive for the value they provide. They can be used by small or large business owners to help protect their business if they are off work due to a critical illness.
Do I need this coverage if I have disability coverage?
Disability plans pay you a benefit when you are off work a set amount of time, which is called a waiting or qualification period. Most plans vary from 14 to 90 days before a benefit is paid. When the benefit is paid, you are going to receive approximately 60 percent of your earnings.
Where does the money come from to carry you through your waiting period? Where does the money come from to replace the other 40 percent of your pay? My answer is, yes, you should have this coverage along with your disability coverage.