For some reason when it comes to Life Insurance, advisors have no trouble adjusting their recommendations to fit a client’s need and budget. Consider the following: a 45 year old male, non-smoker, in normal health (NOT preferred) whose analysis determined a need for $1 Million in Life Insurance coverage. Based on the most recent version of Compulife, the least expensive 10 Year Renewable Term policy would cost him $1,060/year and the maximum Level Premium Term 100 Universal Life policy would cost $58,520/year. Most everyone would find an acceptable premium somewhere between those two figures and likely closer to the lower of the two. Yet, if even that figure was beyond what a client was prepared to accept, I am sure that agreement on a lower amount of insurance coverage would follow. More than that, I am positive that very few prospective clients would ever be proposed the $58,520 premium.
For some reason (unfamiliarity with the product?), far too many Critical Illness presentations start at that very high level: a large face amount; 20+ illnesses covered; permanent protection (or at least Level to Age 75); Return of Premium on early surrender. What is even worse than that is that most advisors, when faced with the “sticker shock” reaction, do not seem to even know how to handle this normal reaction. As an aside, in my 41 years in Living Benefits, I have met TWO clients who did not react with: “Oh my – that is EXPENSIVE!”
A few suggestions:
- Return of Premium is a “frill” and should only be offered after agreement has been reached on a plan and an amount. Understand that I am a strong supporter of Return of Premium on Disability Insurance – while disability may occur prior to retirement, there may also be periods of good health, and ROP on DI allows an insured to benefit from both. On CI, a single claim eliminates ROP. Frankly, your chances of claim are high enough that the purchase of ROP only serves to give the insurer more money to pay the claims. ROP on CI is for corporate clients and clients with extra cash to spend.
- Given that the clients most in need of Critical Illness protection (those who are still accumulating funds; those with businesses and families who would be affected) are the group of people with the largest demands on their current cash flow, we cannot expect these people to have the cash available to purchase level or permanent protection. Term 10 and Term 20 are viable options.
- One of the standard complaints I hear (other than about price) is “It is too hard to qualify for this protection”. STRONG suggestion: purchase/sell this product in two (or more) stages. First of all, apply for a policy offering protection for 3 or 4 illnesses. Even better, apply for an “Easy Issue” policy: it covers those 3 or 4 illnesses which represent 70% to 80% of all claims. It is better to have protection against 70% to 80% of illnesses than against NONE! If you apply for a policy covering Multiple Sclerosis, for example, then a family history of MS is an issue. If you apply for protection against cancer, heart attack, and stroke, a family history of MS is not an issue. More importantly, once you have that protection in place, you can try for more illnesses without losing that basic coverage.
- It is very unusual for someone to need as much Critical Illness insurance as they do Life Insurance. One point to raise here: DO NOT USE CRITICAL ILLNESS INSURANCE TO PAY FOR CARE ABROAD OR FOR CARE THROUGH THE PRIVATE SYSTEM! There are far more effective, and FAR LESS EXPENSIVE ways to purchase that type of protection. $100K (even $50K or $25K) would be of huge assistance in paying off current debts, allowing a loved one to take time off to provide support, or for whatever else might be needed.
Click these for more information on the respective topics :
Long Term Care Insurance
Disability Insurance
Critical Illness Insurance
Life Insurance
Mortgage Insurance
