Why should your clients buy critical illness insurance?

By Ed Morrow

Intl. Assoc. of Registered Financial Consultants


For clients who are building toward retirement, a life threatening condition could postpone their retirement, while a diagnosis could significantly affect or even eliminate retirement accumulation.

What is critical illness insurance? It is protective coverage that pays a tax-free, lump sum benefit upon confirmed diagnosis of a covered critical, life-threatening condition. The benefit is paid whether the insured survives the diagnosis or does not.

If the insured dies from anything other than what is covered, the beneficiary will receive full return of premium.

As an example, there are three different ways this type of policy can pay a benefit:
  • Even if a client survives the diagnosis of a covered condition, they would receive a tax-free, lump sum benefit.

  • If that client doesn't survive the diagnosis, their beneficiary would receive the tax-free, lump sum benefit.

  • If the client died from any reason other than what is covered as a critical illness, their beneficiary would receive 100 percent return of premium.
A financial consultant might say to a prospect, “Your true cost of the insurance benefit is the earnings you might have received had the premiums been invested. In today’s market, that would amount to about 1 percent of premium. This assumes you pay the premium continuously to the stipulated age and during that period you did not contract a covered illness.”

Many times we hear, “People buy what they want, not necessarily what they need.” However, our professional and ethical responsibility is to expose and articulate what clients really need.

Is this coverage necessary?

Is homeowner insurance necessary on a property with no mortgage? Must you have a rider covering special articles, such as jewelry or art? Do you require an umbrella liability policy? No. But you and your clients probably have had this protection for many years.

So, why should your clients purchase critical illness insurance? Critical illness is the only insurance product that protects your client's retirement portfolio should they get diagnosed with a life-threatening condition and survive. It pays a stipulated benefit in excess of all the medical coverage or any disability benefit.

Considering average life expectancy has nearly doubled over the past century and the fastest growing portion of the population is that group between ages 80 and 100, survival of a critical ailment is far more likely now than ever before. For clients who are building toward retirement, a life threatening condition could postpone their retirement, while a diagnosis could significantly affect or even eliminate retirement accumulation.

With the appropriate critical illness insurance (CI) coverage in place, your clients can be confident that the tax-free, lump sum benefit they receive at claim would help provide them with options and put them in better control of their retirement plan.
What if they never have a covered ailment? Then, based on policy provisions, they will eventually receive a tax-free refund. Their cost? What they might have earned on their premiums if invested elsewhere.

Critical illness coverage is one of the most important purchases your clients can make. As an advisor, you have the responsibility to find the product that best suits each client based on their unique needs and circumstances. The question is, where can you get the information, sales-related evaluation, product knowledge, policy selection and underwriting?

Professional support

You really need two types of support: Professional advice from a peer and product-related support.

Many of your clients should have CI within a sound financial plan, but you need access to innovative planning concepts and someone to “shop the market” for the most suitable contracts.

Business owners need CI

Most businesses or professional practices have major risk exposure — property damage, E&O and product liability, etc. They also tend to have large loans — often uninsured — from family members or banks. This market is exploding with opportunities for life agents and financial planners because the number of prospects has been steadily increasing, while the business market training has been continuously declining.

Historical perspective

Critical illness insurance was conceived by heart surgeon Dr. Marius Barnard, brother of Dr. Christian Barnard, the famous heart surgeon who performed early heart transplants. Being a doctor, he was well aware that financial stress after a difficult operation also had bad medical consequences. He found that patients were now living, but their finances were totally depleted by loss of earnings and medical expenses.

The protection was first introduced in South Africa in 1983. Later, it became available, and very much sought after, in several other countries. In the UK, CI has recently become the most popular kind of insurance product. It was first offered to Canadians in 1996, and several years later in the US.

One of the greatest virtues of critical illness insurance is that the product is not designed by insurance companies, but by medical professionals with intimate knowledge of the consequences of a critical illness — and how to carefully define the covered illnesses and the diagnosis.

The market for critical illness is more mature in Canada, where the need for this product has been spearheaded by Alphonso Franco, RHU, RFC president of the Critical Illness Insurance Center. Alphonso has hosted major educational events and he is also the founder and creator of the World Critical Illness Insurance Conferences, in Victoria, Canada.

Specialty product options

First, there are the policies themselves:
  • Individual stand-alone contracts

  • Permanent life with a CI rider

  • Worksite delivery and sales

  • Group coverage
Tools for critical insurance planning

What are the advanced sales concepts for business planning? This is a very big market. The typical premium is consequential and corporations have substantial exposure — and they like to “cover their risk.”
  • Loan cancellation

  • Key person

  • Buy/sell

  • Executive benefits

  • Employee benefits

  • Pension protection planning

  • Business continuation

Since you provide planning services for high-net-worth clients, you will want to consider captive risk issues and the following applications:
  • Income protection planning

  • High-net-worth protection

  • Disability for professional practitioners

  • Loan cancellation

  • Training and development systems

  • Financial education and CI

  • Annual policy reviews

  • Networking with accountants, attorneys and other professionals