Friday, July 10, 2009

Critically Speaking

When it comes to major illness, even the most benefit-laden medical plans don't pay for everything (which is not necessarily bad); for example, there are often travel and lodging expenses, even home upgrades that can get expensive, but aren't covered. There is, however, an insurance product to manage this risk.
Called Critical Illness plans, they've been around quite a while. Basically, these plans pay a lump sum upon the diagnosis of one (or more) of a list of conditions (such as cancer or a stroke). This can be used to help pay for expenses not covered by one's major medical plan.
I recently had the opportunity to interview Ken Smith, Director of Health Insurance for Assurity Life Insurance Company (one of the primary players in this market):
> Thanks, Ken, for your time today. Can you tell our readers a little about the history of Critical Illness (CI) policies?
Well, they were actually introduced in the 1980's, in South Africa. Dr. Marius Barnard (whose brother, Christian, pioneered heart transplants) noticed that, although these surgeries were successful from a physical standpoint, they took a financial toll. In 1983 , to help alleviate this financial burden , he got together with a South African carrier called Crusader Life, and they developed and began marketing the first CI plan.
> Okay, that makes sense, but why should someone buy one of these instead of a good disability income plan?
It's not an "either/or" situation, people really need both, because they solve different problems. People need the disability insurance (DI) to replace lost income, and they need CI to preserve current assets.
The purpose of a CI plan is to remove financial stress. Let's say that you're diagnosed with cancer, and choose M D Anderson as your best bet for survival. Odds are, your medical plan will pay for the treatment and follow-up, but not for you to fly from Dayton to Texas several times a month, or for the hotel room for your spouse. There are really two concerns in these cases: the stress of dealing with the health issue itself, and the added financial stress that comes from the treatment. Medicine has made some great advances, we're living longer and surviving conditions that would have been a death sentence not too many years ago. But there's a price for that.
The other problem with comparing the two (Disability and CI) is that the disability policy may not kick in fast enough. Again, let's say you're missing a few days of work each month for chemo. The problem is that there aren't enough of them, all in a row, to satisfy the waiting period for the the DI plan (even those which allow for cumulative days will take a longer time to start paying out). But of course, it's costing money, because you're not at full function. So the CI plan fills that gap.
> Why a lump sum instead of, say, an income stream?
Well, primarily for the KISS (Keep It Simple) factor. It's a good thing this was designed by a doctor; can you imagine how complicated this would be if the insurance people had put it together? As for the concern that people will squander it, our experience is that claimants do't "blow through it," they're pretty savvy. A lot of them put the money they didn't need right away in the bank, where it can earn some interest, and still be available on a moment's notice.
> What are some key things that readers should look for in a CI policy?
About 80% of the claims we see are for cancer, heart attacks and strokes. The definitions become really important; for example, someone with Stage I Hodgekins, we'd pay 100% of the benefit for that, but some other carriers might only pay at 25%. Or a stroke: many plans say you have to survive 30 days after it to be eligible for payment; we only require 96 hours. The reason for that 96 hour definition, by the way, is to differentiate it from a TIA [ed: an event which often looks like a stroke but is not, and seems to leave no permament damage].
> How does one determine how much coverage is needed?
Think in terms of covering a couple of years of mortgage payments, and of course short term debt (credit cards, car payments, and the like). The CI plan can take off a lot of the stress of dealing with these, and help provide for a smoother transition time.
Thanks, Ken, for your time and expertise!
blog comments powered by Disqus