Who is eligible?

Smokers are generally eligible, but they have to pay higher premiums. Premiums are also determined by age, gender, and your family's medical history. Men generally pay more because they have a higher incidence of heart attacks, strokes and other illnesses.

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 that will cover that specific illness unless you buy additional benefit riders. Some companies might allow you to buy critical illness coverage in such cases, but the policy would exclude any serious medical condition you’ve already had.

Policies also generally terminate when you're age 65 to 75. Some companies also set age limits for buying critical illness insurance, usually up until age 70, when the option to renew is then available until age 75.  Leading American critical illness carrier AIG American General also offers benefits reduced 50 percent at age 65 or five years after policy is issued, whichever is later.

Policies are also now obtainable for both worksite and individual sales, and family coverage as well.  There are unisex and tobacco/non tobacco rates available which also correspond to the attained age at the date of the application.

Recent developments in the product also offer a return of premium rider that will return your premium paid over the course of coverage if you never make a claim.

How do these policies work?

Critical illness insurance coverage limits typically run from $10,000 to $1 million. Mutual of Omaha recommends basing your policy coverage limits on three factors:

• 12 to 18 months of income.
• Your mortgage payments for three to five years. (According to Mutual of Omaha, 48 percent of all mortgage foreclosures are due to people who fall behind on their monthly payments due to critical illnesses.)
• The total of your outstanding credit card debt.

Policyholders pay premiums until termination age, payout of the policy, or cancellation. The company will generally cancel policies 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.

Bear in mind this is "term insurance," and the policy has no cash value. You won’t get your money back or a reimbursement if you cancel after a year or if you never get sick, unless you turn to newer versions of this product.

AIG American General, the leader in critical care insurance in America, is currently offering their latest version called CriticalCare Plus. This new policy offers the same coverage for heart attacks, stroke, cancer, etc. as their regular critical care insurance, but now upon death the policy will still pay out postmortem. Previous versions from various carriers, including AIG, stated that the policyholder had to survive at least 60-90 days after their diagnosed medical problem.

AIG’s CriticalCare Plus program also has a unique additional named loss of independent living clause, which states that if the individual is past the age of 70 and cannot do two of six activities of daily living (coupled with a doctor’s certification that this inability is permanent and the condition persists for at least 180 days) they qualify for payout as well. The six activities of daily living are: bathing, dressing, toileting, transferring, continence, and eating.

The CriticalCare Plus policy offers a lifetime plan and 10, 15, 20, and 30-year term plans with a maximum benefit of up to $500,000. Underwriting is required for amounts exceeding $100,000, and policies can start from as low as $10,000 with no medical exam required.

Most critical illness plans are designed to pay only one full benefit, but AIG’s optional benefit extension riders provide additional protection for two types of diagnoses: continuance and recurrence. The continuance rider covers the 180-day period following payment for a covered critical illness. The company will then pay out another full benefit if the client is diagnosed with another (yet different) critical illness.

Ley delves into his company’s new product, and speaks of its promising characteristics.

“Even if you never become diagnosed with a critical illness, die directly after being diagnosed, or lose any aspects of independent living, we [AIG] will return all of your money to you if you die with the policy still in force. Is this policy expensive? Yes. It’s expensive because it’s a sure thing. One of those things will happen. Lapsing the policy is the only way you will not get any money in return.” 

The future of critical illness insurance

The future of critical care insurance and its popularity in America have been changing recently due to concerns over rising health care costs that have driven demand for insurance products that will lower out-of-pocket medical bills.

Ley commented on the rising trend costs, stating, “This product is very marketable right now because of the way healthcare is in this country. The loss of independent living clause is a great alternative way to cover long-term care, and giving money back at death means that the overall cost of the policy is really the interest rate you earned on the policy.”

Eastbridge Consulting Group, a marketing advisory firm to the financial services industry in Avon, Connecticut, conducts a survey every two years of insurance carriers to determine worksite product trends. Its 2006 report (released in May) showed that critical illness and supplemental insurance, disability insurance, and limited benefit medical plans are expected to be the top-selling voluntary benefits in the near future.

Fifty-three percent of the survey respondents said that critical illness would be the top-growing product over the next few years, and thirty-five percent added that they expect to introduce a critical illness product in the next year or two.

Despite this however, critical illness products have been deemed the industry’s top “under performer”. Bonnie Brazzell, vice president of Eastbridge noted, “Thirty-two percent of the carriers surveyed named critical illness as the product that has not grown as expected. This is even more interesting when we consider that Eastbridge’s 2006 U.S. Worksite Sales Survey showed that the critical illness line of business grew at one of the faster paces in 2005, up 13% from 2004.”

Ley offers another key point. “We are an “instant gratification” society. We see the success of the product overseas and we compare it to the success we have experienced here in the U.S. so far, and we consider it a failure. In talking to my contemporaries in other countries, I am told that the sales growth rate we are experiencing nearly parallels the growth rate in many of those foreign lands. When a new product is introduced, it simply takes time.”

With the rising health costs of today, consumers are looking for alternative sources of coverage to protect themselves from unexpected medical expenses. Although critical illness insurance is not very popular in the United States at this moment, it is very likely that this type of supplemental insurance will be highly sought after in the near future.

Read the fine print

Insurance companies and consumer advocates say 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. Cancer is defined in different ways. You don't want to pay for coverage and then find out most illnesses are excluded.

• Short payout periods. Most critical illness policies pay you 30 days after the onset of the illness.

• Lump-sum benefits. Make sure you get your money all at once, not over time.

• Provisions in case you die before payout. Some companies will pay your beneficiaries a percentage of the policy’s benefit if you haven't used it. Some companies pay nothing.

• Riders. Can you also cover your children or spouse? What, if any, are the extra costs in doing so?

Be smart about choosing any insurance policy. Shop around to see what type of coverage most interests you and your lifestyle. While critical illness insurance is an alternative option and supplement to one’s life insurance policy, it is definitely something to consider if you worry about future health problems and high billing costs.

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