As continuous advancements in the medical field have extended life expectancy and increased the likelihood that Canadians will survive such major illnesses as cancer and heart attacks, critical illness (CI) insurance has become a product with growing relevance for many Canadians.
However, only a fraction of advisors are talking to clients about CI insurance, and experts say this leaves a major opportunity for advisors to sell much more of this type of coverage. In fact, three quarters of CI policies are sold by just 27% of insurance advisors in Canada, according to John Shayer, director of business development at Quebec City-based SSQ Life Insurance Company Inc.
“A lot of people believe that disability insurance, critical illness insurance, all of this stuff is too complicated, but it’s not,” says Tim Landry, living benefits consultant with Montreal-based QTR Solutions. “Clients need it.”
CI insurance is designed to provide clients with a financial cushion in the event that they experience a serious illness, providing them with the resources to cover any costs associated with the illness and to take time off work, if necessary. Policyholders who are diagnosed with one of the illnesses covered by the policy, and survive a waiting period —typically 30 days following the diagnosis — receive a lump-sum benefit.
Coverage ranges from about $25,000 to $2.5 million.
“It alleviates the financial pressure so that they can focus on what they should be doing, which is getting better,” says Micheline Varas, senior vice president, living benefits and managing partner at Vancouver-based Customplan Financial Advisors Inc.
When CI insurance was first introduced in Canada in the late 1980s and early 1990s, most policies only included coverage for three illnesses: cancer, heart attack and stroke. Today, although these basic policies are still available from most insurers, many have introduced more comprehensive policies that cover up to 30 different conditions.
Given that the three illnesses initially covered by the policies are by far the most common, however — representing 85% of claims, according to Shayer — the basic policies continue to be a popular option.
In total, more than 1.6 million Canadians are covered by CI policies on either a group or an individual basis, according to the latest statistics from the Canadian Life and Health Insurance Association (CLHIA), with sales having grown steadily over the past several years.
Last year, however, sales of CI policies in Canada fell by 8% in terms of new premiums, according to the Life Insurance Marketing and Research Association (LIMRA).
“Last year was a rough year,” says Karen Terry, assistant managing director of insurance research with LIMRA. “That actually was our first decline since 2008.”
The decline was largely a result of new policies having become more expensive in the past couple of years, as insurers raised premiums in order to offset the impact of low interest rates.
“Quite a few companies increased their pricing — in some cases, significantly,” Terry says.
The rising cost of CI insurance is one factor that deters some advisors from promoting the product. Despite the price increases, however, advisors who sell CI insurance say the product continues to have appeal among clients. They note that clients can choose between different structures when buying CI insurance, depending on their needs and their budget, including 10- and 20-year renewable term, level term to age 75 and level permanent.
“You fit the product, and the price structure, to your client’s needs and the client’s situation,” says Landry.
Another element of CI insurance that is discouraging for some advisors is the difficulty getting clients approved for coverage in cases where they have health problems, or a family history of disease. However, Landry notes that some insurers offer CI policies specifically geared towards individuals who are hard to insure.
Traditional CI insurance is appropriate for essentially any healthy client under the age of 65, according to Landry. He says it’s most popular among younger clients, such as those in their 30s and 40s with young children, who want to be financially prepared for the unexpected. Premiums are generally lower when individuals are young and healthy, Landry notes, which adds to the appeal of the product within that demographic.
“Your big needs are when your debts are high, because you want them paid off, and when you’re raising kids,” says Landry. “Your big needs are during your younger years.”
This is the first article in a three-part series on critical illness insurance.
Up next: strategies for selling CI.