Critical Illness Insurance Living Benefits Center
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Briarwood's Partner in London
KRÜGGER-BRENTT, LTD
BRIARWOOD'S PARTNER IN LONDON
IN OUR JOINT VENTURE
CRITICAL ILLNESS INSURANCE FILLS A CRITICAL NEED
By Geoffrey Tresman
London, England
Life Insurance Selling, 11/96
More than 4,000 people in the United States suffer a heart attack each day, while another 3,000 or more are told that they have a life threatening cancer. More than 1,000 additional persons suffer a stroke. These statistics from the American Heart Association and the American Cancer Society make grim reading, but there is good news. Two-thirds of those people suffering a heart attack will be alive a year later, as will almost three-fourths of those suffering a stroke ("1993 Heart and Stroke Facts Statistics", American Heart Association).
About 40% of those persons diagnosed with cancer today will be alive in five years ("Cancer Facts and Figures - 1994", American Cancer Society). Largely as a result of advances in medical science, together with ongoing improvements in food hygiene and sanitation, people who suffer major illnesses and conditions that only a few years ago would have proved fatal now are surviving, and those survival periods are growing. In most cases, however, medical science has been able only to improve the treatment's quality and sophistication, and rarely has come up with an actual cure.
"Someone's financial security is most threatened
when he is told by his physician that he has
suffered a heart attack or stroke, or that the
lump taken for a biopsy in fact was malignant.
Disability insurance normally will pay out little
more than 50% of income, and will not start
until three or six months after diagnosis."
So what innovations has the insurance market come up with to meet the challenges of the '90s and the next millennium? The answer, sadly, is little until now. A few carriers now are introducing a policy that will pay 100% of the face value upon diagnosis of certain serious, although not necessarily life-threatening, conditions. Insurance always has been an attempt to provide financial security when the person needs it most. While traditional life insurance satisfied this definition some years ago, it now falls somewhat short, bearing in mind the statistics in the opening paragraph.
Someone's financial security is most threatened when he is told by his physician that he has suffered a heart attack or stroke, or that the lump taken for a biopsy in fact was malignant. Disability insurance normally will pay out little more than 50% of income, and will not start until three or six months after diagnois. This person will be encouraged to return to work by the insurers, who fear the bad claims experience of the past decade.
A policy that pays out a lump sum of money at this time will prove invaluable to the claimant, his family and dependents, and will provide that financial independence at the time the person needs it most.
Critical illness insurance is not new. It was introduced in South Africa in 1983. The product has enjoyed phenomenal success in the United Kingdom over the past 20 years, and in Australia, where all but two insurance companies off the product. In Japan, half a million policies were sold in the first 10 months following this product's launch in 1992. In 1995, nearly three million policies were sold in Japan.
This product has extremely wide application, with most people having a genuine need for this policy. Think of the mortgage protection market. If someone has a heart attack tomorrow, which would he rather lose, his house or his mortgage? A traditional life insurance policy will not pay out on diagnosis, although the person's ability to continue working may be at best severely hampered. Many people do not die in the traditional sense after having a stroke, but are in great danger of dying a financial death.
The single person's market never has been fruitful for most life insurance agents, but there is great potential for critical illness insurance for single people who, if they suffer a stroke or other condition, become their own dependents. Who will look over them and help pay all the bills that private medical insurance does not cover, such as home nursing help, rehabilitation costs, or alterations to the home? All this and having to continue to pay the mortgage!
If a family's main breadwinner suffers the stroke, the consequences to the family's financial health often are catastrophic.
Mothers who do not work outside the home also are an important and growing market for this kind of product, particularly in the United Kingdom, where it is impossible to buy liability insurance on a homemaker or mother despite the fact that the homemaker's role would be impossible to replace without a significant cost. Many fathers have experienced the turmoil occasioned by the mother having to go to bed for a few days during a bout of flu. Have those same fathers wondered what the effect would be on their household if the mothers went to bed for a year or longer?
Critical illness insurance can be sold as a supplement to disability income. In the vast majority of disability cases, people either cannot or do not buy sufficient levels of coverage. There are many restrictions on the amount, and the time between the date of a claim and the date of payment often is so long that the person who suffered a heart attack already is back at work before the claim is paid.
In too many cases, the person is back at work against sound medical advice, but driven by unavoidable financial pressures. Critical illness insurance will provide the financial security to enable the insured to reduce debt, fund convalescence or further treatment, and enable that person to make what may be a reduced quantity of life into a much better quality of life. It also will enable the person to reduce the financial and physical burden for the family.
Finally, the business market opens up enormous opportunities for critical illness insurance for exactly the same reason as given above. A company requires financial suppport when they have lost a key person's services. If the creative genius behind a successful advertising agency suffers a heart attack or a stroke, he may not be able to return to work for months or years, and in some cases never will be able to return to work.
In this event, the company has not been provided with the financial resources to replace that person temporarily or permanently, and neither will it have the capital to exercise the discretion to provide financial compensation to that person if they fire him. A critical illness policy could provide financial resources to enable the company to replace that executive, sustain clients' confidence, continue to meet interest payments on outstanding debt at a time when cash flow may be hit, and also provide sufficient money to enable the company to make a generous redundancy settlement.
Many insurance analysts predict that critical illness insurance will be a $70 billion market by the turn of the century. If the success enjoyed in other parts of the world is repeated here, that may be an understatement.
Geoffrey David Tresman has spent 21 years selling life insurance, disability income, critical illness insurance, annuities, and investments. Mr. Tresman is a director of SAUKUSA International Marketing Corporation, which helped launch some of the first critical illness policies in the United States by bringing carriers together with reinsurers and assisting in the contract design.