Critical Illness Insurance Facts – 4 of 4

The main long term care planning solution for the last forty years has been a traditional long term care insurance policy. These policies continue to provide the best solution for a long term care need, and we recommend them whenever we can.

However, the insurance companies have had a very difficult time making decent profits from this product for a variety of reasons, among them the high and expensive incidence of claims. Therefore, the insurance companies have created a number of new life insurance and annuity products which provide at least some long term care protection and are more profitable for them. In the last of four blogs, let’s briefly discuss the relative merits of critical illness insurance.

Critical illness insurance is a very popular product in much of the developed world, but not thus far in the United States. This is a surprise because this type of insurance satisfies a very large need in this country. But sales are increasing rapidly, and critical illness insurance could enter the mainstream of American insurance solutions soon.

The ideal prospect for critical illness insurance is the main family wage earner in their forties and fifties with moderate income and assets. This is especially true if the family has no rainy day fund, and like many American families, has a big mortgage obligation and credit card debt. Should this person experience cancer, a heart attack, a stroke, or other illness which can cause a long period of recovery, there will be substantial expenses even if that person is well protected with health insurance. Even if that person has disability insurance, the disability benefits are only a partial replacement of income and will not fully cover family expenses.

The result is that there is an immediate income gap which can often cause the need to sell one’s home or take some other extraordinary measure to create some cash flow.

Critical illness insurance comes to the rescue by providing a check in a pre-specified amount, right away, and with no limitations on its use.   This can be a great employee benefit, as it addresses the fear that a serious illness with loss of income can occur at any age. The policyholder determines in advance what the amount will be. The selected benefit is usually in the $ 25,000 to $ 50,000 range, and the premium can be well under $ 100 per month. However, some policies are written that can provide hundreds of thousands of dollars in benefits, and can act like long term care insurance policies if they cover mental illnesses.

Every policy covers cancer, heart attack, and stroke, and many cover other serious illnesses that create ADL limitations as well. However, there is normally only a partial benefit, say 25 % of the full benefit, for a mild cancer, heart attack or stroke, where the period of illness may be short. Mental illnesses are rarely covered, and of course, they constitute 40 % to 45 % of all long term care scenarios.

Critical illness insurance is appropriate coverage for many millions of Americans. We expect its popularity to grow rapidly in the future. We have a full suite of critical illness insurance products in our portfolio with the requisite expertise to explain them. Please give us a call at (800) 303-1527 for further information.