Helping your clients choose the most appropriate critical illness product can be fraught with difficulties. Typically, clients want as many guarantees as possible, including the bells and whistles associated with the product. However, what clients want and what they need and can afford can be quite different.

Generally, there are two main types of CI plans: basic and comprehensive. A basic plan covers common illnesses such as heart attack, stroke and cancer, while a comprehensive plan can cover as many as 24 illnesses. Terms of coverage vary and can range from 10 years up to age 100. Features, such as conditions covered, also vary to add to the confusion in policy selection. Bells and whistles, such as return of premium — which can be either fully or partly refunded upon expiry or the end of the term of the CI contract, upon death or upon cancellation of the policy if a claim is not made — further add to the complexity of making a decision.

“It often comes down to making a choice, with the client lamenting, ‘I’d like to have it, but I can’t afford it’,” says Sean Long, health products consultant with Desjardins Sécurité Financier in Toronto. People generally want more guarantees than they actually need, he adds.

“Most conscientious advisors conduct a needs analysis,” says Alphonso Franco, president of the Critical Illness Insurance Centre in Victoria. Ultimately, the decision comes down to what the client can afford.

Franco addresses this by exploring the options with clients, including “cutting bells and whistles” if appropriate or reducing the term of the contract to “find a solution to the need.” For instance, keeping cost in mind, he may recommend a 10-year term instead of a term-100 policy, or a combination of term and life guarantees. “At the end of the day, the client has the option to choose,” he says.

Long cautions that, in order to avoid compromising need, the advisor must assess the client’s personal situation. For instance, how much money would the client need in the foreseeable future should a major illness occur?

“If a client has a heart attack and can return to work in a few months,” he asks, “does that person really need $1 million in insurance coverage? Also, is it necessary to have guarantees on 24 illnesses, when more than 97% of all claims are related to only five illnesses?”

While the answers to these questions can be subjective, they can help clients make appropriate choices based on realistic assumptions. Lawrence Geller, president of L.I. Geller Insurance Agencies Ltd. of Campbellville, Ont., says the advisor must examine the client’s financial circumstances, including other insurance coverage already in place, such as life and disability.

Geller also points out that it is important for an advisor to exercise caution when selling a CI policy, because the advisor risks being sued for selling a policy that does not provide coverage for an illness the client may develop.

Generally, Geller says, Canadians have an affinity for guarantees but have a “premium tolerance” limit: “They do not perceive risk to be as great as cost.”

It is important to consider the effect the number of guarantees will have on cost. Gary Mooney, vice president of business development at Montreal-based Optimum Reassurance Inc. and president of Toronto-based actuarial and marketing consulting firm Actel Resources Inc. , says a comprehensive CI policy is relatively attractive compared with basic coverage as it costs only about 25% more.

Franco uses different figures but comes to a similar conclusion. He points out that the cost of covering four illnesses is 90% of the cost of a policy that covers 24 illnesses. That small difference in cost should be considered in terms of the potential loss of coverage when determining how much insurance a client can afford.

“There is no question, any time, about selling basic versus comprehensive,” says Franco.

The ROP option is another feature that demands careful attention. Long says it is normally one of the biggest selling features, but on average it adds about 40%-50% to the cost of a policy.

“Many companies are unbundling the ROP,” says Mooney. This move gives clients the choice to decline the ROP option. While the ROP may appear attractive, declining it can make CI coverage more affordable.

@page_break@“CI should be sold as a concept to clients who have a need,” says Mooney. He advises that affordability can be addressed by selling lower face-value amounts and shorter term guarantees.

Long suggests selling coverage that addresses current vs long-term liability, for the lowest possible cost.

“What is a major critical illness today may not be so in the future,” says Long, pointing to advances in medical technology. With that in mind, clients can prudently decide to buy a more affordable, shorter-term guarantee that covers their needs for the foreseeable future.

He also points out that many clients may never need the “best doctor” feature, which provides ready access to medical expertise around the world.

One area in which many advisors may have difficulty in helping clients choose the best policy is interpreting the definitions of illnesses covered. “Definitions are not standardized,” says Franco. “What might be considered a heart attack by one insurer is different for another.”

Not everyone agrees that this is a problem. “Uniformity is difficult to achieve and maintain, and it hinders innovation,” Mooney says.

Yet there is broad consensus that the day for standardized definitions is near at hand. “The swell is building,” says Franco, adding that, if the insurers do not agree to standardized definitions, they will be regulated into doing so. IE