Gap Between Life and Disability
Coverage
The statistics are clear: People are living longer.
Just What Is Critical Illness Insurance?
Although policies will vary from company to company, critical illness insurance typically pays a lump sum to someone who suffers a specified critical illness or injury and survives. Critical illness insurance is similar to cancer insurance but even broader.
"Critical illness insurance does include most of what can happen to people," says Leigh Canfield, director of diversified marketing operations for UNUM Corp in Portland, Maine.
Do You Need Critical Illness Insurance? That Depends.
Insurance sellers tout critical illness coverage as something that can fill a gap between disability insurance and life insurance. Life insurance pays out when you die; disability insurance pays out over time when you suffer a disabling illness or injury that prevents you from returning to work, and it can replace only a percentage of your lost wages.
With critical illness insurance, on the other hand, you must survive but you don't have to be disabled to collect. You also don't have to be employed, as you do to collect disability insurance. And the payment, generally made to you in a lump sum 30 days after the onset of your illness, can be used however you please ญญ on bills, mortgage payments, or anything else.
"You can take a world cruise," notes Brian Goebel, vice president of marketing and product development for PM Group Life Insurance Co., a subsidiary of Pacific Life Insurance Co.
More realistically, he says, you'll probably use that lump sum to pay for medical expenses not covered under your other insurance policies, such as seeing out-of-network doctors, to pay for home healthcare, or to make up your spouse's lost income if he or she takes time off work to care for you. Other possible uses: retrofitting your car or home for a wheelchair, starting an education fund for your children, or keeping your business afloat while you're out of commission. The payout is also nontaxable.
You don't have to worry about disability policies and critical illness policies offsetting each other, Goebel says. That is, getting one doesn't exclude collecting on the other; you can get payments from both. Likewise, companies will generally pay out on a critical illness policy regardless of your health insurance, Canfield of UNUM says. "Critical illness insurance is supplemental; you won't be penalized."
Voice of Dissent
A major consumer advocacy group, however, is downright opposed to sales of critical illness policies.
"It's better if nobody buys this stuff," says Gail Shearer, director of health policy analysis for the Washington, D.C., office of Consumers Union, an independent, nonprofit testing and information organization serving consumers. The group has also strongly come out against cancer insurance. "Our view is people are better off with a comprehensive health insurance policy that meets their needs regardless of what makes them sick."
Shearer likens buying critical illness insurance to playing the lottery. "When people do their budgets, they should put this spending under 'gambling,' " she says. "Let the buyer beware should be plastered all over the
place.
Who Sells It
Today in the United States, PM Group and UNUM are among the main sellers of critical illness insurance. Both say competition for market share is still mild because insurance companies have only recently begun offering the insurance, and there is still plenty of room for new players.
PM Group, for instance, has been approved to offer critical illness insurance in eight states ญญ California, Colorado, North Carolina, Ohio, Oklahoma, Oregon, Tennessee, and Texas. It's seeking approval in 31 more states. The company offers critical illness coverage only through employer groups.
UNUM sells policies in 32 states and hopes to add the rest of the country in the next three months. It offers individual policies.
Who is Eligible
If you're an asbestos worker, a coal miner, a professional boxer or wrestler, or work in the gambling industry, you'll probably be ineligible, though rules vary by company. (These occupations are considered high-risk. Why gambling, you might wonder? Because those jobs tend to be in smoky environments.)
Someone who smokes, ironically, will generally be eligible; you'll just have to pay higher premiums. Premiums will also be determined by age, gender, and you and your family's medical history. A family history of a hereditary disease could render you ineligible to buy coverage altogether or exempt coverage for that particular illness. You cannot buy coverage for a pre-existing condition, and people who have HIV or are overweight also could be ineligible.
Additionally, once you have a heart attack, stroke, or other illness, your policy will pay out and then terminate, and you will not be able to buy another critical illness policy ญญ at least not one that covers your condition. For instance, some companies might allow you to buy critical illness coverage that excludes heart attacks if you've already had a heart attack.
Policies also generally terminate when you're age 65 to 75. Some companies also cap how old you can be and still take out a policy. Most of UNUM's policies, for instance, are capped at age 60. However, it does offer reduced-benefit policies to those over 60.
What It Costs
Through PM Group, a healthy 40-year-old man or woman buying $50,000 of coverage would pay about $18 to $20 a month, Goebel says. That would jump to $25 to $30 a month for a smoker. A 60-year-old man with a $50,000 policy would pay $65 to $80 a month. And a person under age 30 would typically pay $8 to $10 a month.
"It's designed to be cost-effective," Goebel says. "But we're also trying to have enough profit margin to make it worthwhile for us."
At UNUM, coverage limits run from $10,000 to $100,000. A typical 38-year-old nonsmoking man would pay about $15 a month for a $30,000 policy, Canfield says. A woman would pay just $4.80 a month. For smokers, the rates double.
Premiums are typically higher for men because they have a higher incidence heart attack, stroke, and other illnesses.
Policyholders pay until termination age, payout of the policy, or cancellation. Policies will generally be canceled by the company if premiums aren't paid, if a payout is made, if the policyholder dies or reaches termination age, or if the policyholder requests a cancellation.
But bear in mind this is strictly term insurance, and the policy has no cash value, so you aren't going to get your money back or a reimbursement if you cancel after a year or if you never get sick and your policy never pays out.
"People are better off putting those premiums in the banks," contends Shearer of Consumers Union.
Goebel disagrees. "The value considering how low the premium is would be exceptional," he asserts. "The younger the person, the lower the premium. The younger person is much less likely to have any kind of savings to get through difficult times. Even though they're less likely to come down with one of those conditions, they're more vulnerable because they have fewer assets to get them through that time."
Read the Fine Print
Insurance companies and consumer advocates do agree that you should take a close look at the details of any policy you are considering.
Some things to look for:
Clear definitions of what an illness or accident is, and which are covered. "It sounds like the kind of policy that's going to be fraught with problems in proving you qualify for the benefits," Shearer warns. Cancer, especially, is defined in different ways, and some companies distinguish between life-threatening and
nonlife-threatening cancer. Even heart attacks are open to interpretation, Canfield notes. You don't want to pay for coverage and then find out that most illnesses are excluded.
Short payout period. Most pay you 30 days after the onset of the illness.
Lump sum benefit. Make sure you get your money all at once, not over time.
Provisions in case you die before payout. UNUM will typically pay your beneficiaries 25 percent of your policy if you haven't used it; some companies pay nothing.
Exclusions. Closely examine what's left out or what isn't covered.
Riders. Can you also cover your children or spouse? What, if any, are the extra costs in doing so?
Reprinted With Permission:
By Jennifer M. Gangloff
insure.com
http://www.insure.com
Date Published: December 1999
Date Reviewed: November 1999
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A
Brief History of a New Product
Critical illness insurance is a relatively new concept in the United
States, gaining popularity only in the past couple years. It was first
introduced in 1983 in South Africa, where the man credited with
conceiving the idea is Dr. Marius Barnard. (Does the name sound
familiar? He is the brother of Dr. Christiaan Barnard, the man credited
with the first successful human heart transplant in the late 1960s.)
European companies began offering critical illness policies soon after,
and Canada introduced it about four years ago.
And as they live longer, they're
more likely to experience a heart attack, cancer, kidney failure, or
other illness that can knock them down temporarily, but not necessarily
out. Modern medicine knows how to keep people alive and functioning
longer, so chances are you can even continue to work once you're
stabilized.
Insurance companies see this as an opportunity and in
response have developed "critical illness insurance."
Some of the Illnesses and Injuries Typically Covered
- Heart attack
- Stroke
- Kidney failure
- Paralysis
- Loss of sight
- Loss of limb
- Loss of hearing
- Loss of speech
- Major organ transplant
What are the solutions?
- Health insurance - covers certain medical expenses
- Disability insurance - provides a regular income to help meet
day-to-day living expenses
- Critical illness insurance - provides financial resources to pay for additional personal, family or business expenses that often accompany a critical illness or condition
Who needs critical illness insurance?
- Professionals
Business owners
- Employees
- Part-time or seasonal workers
- Homemakers
- University students
What are the chances of suffering a critical illness?
Do you know someone who has been affected by a critical illness
- such as heart attack, cancer or stroke?
Suffering a critical illness or condition is more likely than you think.
- 1 in 2 men and 1 in 3 women aged 40 and under will develop coronary heart disease
- 40,000 to 50,000 Canadians suffer a stroke each year
- 1 in 3 Canadians will develop cancer
- More than 50,000 Canadians have Mutiple Sclerosis
Surviving a critical illness is also more likely.
- 95% of hospitalized heart attack victims survive the initial occurrence
- 75% of stroke victims survive the initial event
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