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1. The Marketplace for Critical Illness Coverage. August 2004. Presented by : Jerry Jacobs, CLU 5416 Yale Street Metairie, Louisiana 70003 Ph#(504)888-2242 Fax#(504)889-1753 Email: Introduction What is Critical Illness Insurance?

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The Marketplace for Critical Illness Coverage

August 2004

Presented by : Jerry Jacobs, CLU

5416 Yale Street

Metairie, Louisiana 70003

Ph#(504)888-2242 Fax#(504)889-1753



What is Critical Illness Insurance?

U.S. Marketplace Trends

Need for Critical Illness Protection

Product Design

Marketing Applications

Global Perspective

U.S. Critical Illness Marketplace

Why Sell C.I.I.

Q&A/Discussion – Open Forum – Issues/Concerns



  • Approximately 1.5 million Americans suffer a heart attack each year.

Of these, 1.1 million survive at least three (3) years.

  • Over 40% of the population will develop breast, prostrate, or some

form of cancer at some point in their lives.

  • The probability of surviving a critical illness before age 65 is almost

twice as great as dying.

Source: 1987 Employee Benefits News And Views Magazine


What Is Critical Illness Insurance?

  • Critical illness insurance (C.I.I.) has characteristics of both life insurance and health insurance.
  • C.I.I. pays a life insurance-type lump sum benefit, upon diagnosis of one of a number of critical illnesses rather than upon death.
c i i coverage
C.I.I. Coverage
  • C.I.I. will pay a lump sum benefit after the insured is diagnosed with a critical illness. Virtually all products cover the “Big Three”:
      • Heart Attack
      • Stroke
      • Life Threatening Cancer
  • Nearly 70% of all deaths under age 75 are associated with heart disease, stroke and cancer.
the big three
The “Big Three”
  • Heart Attack
  • Death of a portion of the heart muscle (myocardium) from a blockage of one or more coronary arteries.
  • Stroke
    • Any acute cerebrovascular accident producing permanent neurological impairment resulting in at least thirty (30) days of paralysis or other measurable neurological deficit.
the big three7
The “Big Three”
  • Life Threatening Cancer
    • Only those types of cancer shown by the presence of a malignancy identified by the uncontrolled growth and spread of malignant cells and the invasion of tissue that could result in death.
world growth
World Growth
  • Concept developed by Marius Barnard
  • Introduced South Africa in 1980s
    • United Kingdom
    • Japan
    • Continental Europe
    • Australia
    • Canada
    • Ireland
    • United States
types of critical illnesses
Types of Critical Illnesses
  • Heart Attack
  • Stroke
  • Life Threatening Cancer
  • Coronary artery (bypass) Surgery
  • Angioplasty
  • Renal (kidney) Failure
  • Major Organ Transplant

(heart, lung, liver, bone marrow)

types of critical illnesses10
Types of Critical Illnesses
  • Alzheimer Disease (before age 65)
  • Brain Damage
  • Coma
  • Loss of Hearing
  • Loss of Independent Existence (before age 65)
  • Loss of Sight
  • Loss of Speech
types of critical illnesses11
Types of Critical Illnesses
  • Loss of use of two or more limbs
  • Multiple Sclerosis
  • Muscular Dystrophy
  • Parkinson’s Disease
  • Rheumatoid Arthritis (before age 65)
  • Total Permanent Disability (before age 65)
  • Benign Brain Tumor
  • Diabetes
illnesses types of critical
Illnesses Types of Critical
  • Emphysema (before age 65)
  • Heart Valve Surgery
  • Severe Burns
  • Terminal Illness
u s marketplace trends
U.S. Marketplace Trends
  • Medical technology is keeping people alive longer
  • The concern today is not dying too soon – it’s living long
people living longer
People Living Longer
  • 65 year old male can expect to live to age 83
  • 65 year old female can expect to live to age 87
attitudinal trends
Attitudinal Trends
  • Consumers have greater fears than premature death, such as:
    • The cost of health care
    • Cost of nursing homes
    • Having enough income to retire
life insurance industry trends
  • Demographics favor living benefits over death benefits
  • THE RESULT: Individual life sales have declined

30% over the past ten (10) years.

Source: Marketing Edit LIMRA 1997

why c i coverage
Why C.I. Coverage?
  • Probability of surviving C.I. before age 65 is almost twice that of dying
  • Costs associated with C.I. are not covered by traditional insurance
why c i coverage19
Why C.I. Coverage?
  • EXAMPLE: Two-thirds of all cancer-related costs are indirect,

non-medical expenses, such as:

    • Lost income for C.I. Survivor
    • Lost income and work time for spouse or care giver
    • Housekeeping and child care expenses
    • Home health care needs
    • Home or car modifications
    • Non-covered experimental treatments
    • Expenses not covered by insurance (including co-payments
    • and deductibles)
if you survive a critical illness what will you do
If you survive a critical illness, what will you do?
  • Life Insurance – with rare exception, not available while the

sufferer is alive. Intended for dependents or beneficiaries.

  • Health Insurance – Possible limited benefits

deductibles/co-pays. May be limited in scope of portability if the

sufferer leaves his/her employment.

if you survive a critical illness what will you do21
If you survive a critical illness, what will you do?
  • Disability Insurance – pays a percentage of the sufferer’s

monthly income and benefits are dependent upon ability to


  • Long Term Care – limited to a daily benefit available subject

to a hospital stay or home nursing requirements.

  • Accumulation Products – intended to provide supplemental

retirement income.

critical illness insurance
Critical Illness Insurance
  • Insured has options
  • The money provided by the C.I.I. empowers the insured

to exercise choice.

  • C.I.I. is a consumerist product
  • Essential ingredient of a life insurance product = probability

of death (qx)

Life Insurance Product

  • Investment
  • Expenses
  • (qx)
  • Essential ingredient of a C.I. insurance product = probability of

diagnosis of a critical illness (ix)

Critical Illness Product

  • Investment
  • Expenses
  • (ix)
  • Any life insurance product design can, in principle, be

be duplicated in a corresponding C.I.I. product by

exchanging the key probability of death (qx) for the key

probability of a diagnosis of critical illness (ix)

basic types of c i i coverage
Basic Types of C.I.I. Coverage
  • Acceleration Benefit Rider
    • Pays all or a portion (usually 25-100%) of the life face amount
    • upon diagnosis of a critical illness.
  • Additional Benefit Rider
    • Pays the rider face amount upon diagnosis of a critical illness.
  • Stand Alone
    • A health product which pays a lump-sum benefit upon the
    • diagnosis of a critical illness.
product design options
Product Design Options
  • Covered Diseases
    • Definitions must be consistent with incidence rates used in
    • pricing.
  • Waiting Period
    • First diagnosis must be made following some specified
    • time after the issue date of the policy.
  • Survival Period
    • Built on assumptions that the purpose of C.I.I.
    • coverage is to help cover the costs of living with a
    • critical illness. Example: Must survive 30 days after
    • after diagnosis to be eligible for C.I. benefit.
product design options28
Product Design Options
  • Premium Guarantees
  • Acceleration Amount
  • Pre-Existing Conditions
  • Maximum Age
  • Maximum Face Amounts
  • Reduced Amounts
family individual perspective
Family/Individual Perspective
  • Replace reduced earnings
  • Pay off personal debts
  • Cash for medical treatment or associated expenses
  • Education
business perspective
Business Perspective
  • Buy/Sell Agreements
    • Provide ill shareholder with benefit
    • Enable working shareholders to buy out ill shareholder
  • Key Person
    • Pay off creditors
    • Executive perquisite
    • Recruit replacement with similar talent
c i i product
C.I.I. Product

Critical Illness Insurance is Flexible

  • Life
  • Health
  • Disability
  • Other products
c i i global perspective
C.I.I. Global Perspective
  • South Africa
    • Concept – Marius Bernard
    • 1983 – introduced – Abbey Life
c i i global perspective33
C.I.I. Global Perspective
  • U.K. Success Story
    • 1987 – Introduced
    • 1993 – 70 companies sell C.I.
    • (12 billion in force in 1995)
    • 1997 – 626,584 new policy sales (33% over 1996)
    • Two million policies in force
    • C.I. policy sales have increased in each of the last six years as
    • a percentage of overall individual life sales (22% in 1997)
    • 83% of sales are mortgage related

Source: Financial Times 1998

c i i global perspective34
C.I.I. Global Perspective
  • Australia
    • 1990 – introduced
    • 1997 – 31 out of 33 Australian Life Companies offer C.I.I.
  • Japan
    • 1993 – introduced
    • (sold over 500,000 policies in first 10 months)
    • 1994 – over two million sold
    • 1997 – over six million sold covering many more medical
    • conditions since first introduced

Source: Life Insurance Selling 1997

c i i global perspective35
C.I.I. Global Perspective
  • Developing Asian Markets
  • 1985 Singapore
  • 1988 Hong Kong, Malaysia
  • 1990 Taiwan, Thailand
  • 1992 Indonesia
total dread disease policies
Total Dread Disease Policies

1997 Net Premiums written by U.S. Companies

N = $5,161,545,733

united states c i marketplace

United States C.I. Marketplace

Individual Life Arena

why sell c i i
Why Sell C.I.I.?
  • Insurance Company
    • Replace declining life sales
    • Global sales success
    • Fits into health, disability arenas
    • Distribution channels
    • Emphasis on living benefits..demographics
    • Potential higher return on capital
    • Leverage distribution
    • GROWTHS$
why sell c i i40
Why Sell C.I.I?
  • Producer
    • Fits marketing organizations (career,
    • independent agencies, producer groups)
    • Fits market segments
    • Living Benefits (ex., LTC)
    • Another financial planning tool for client
    • Consumer appeal is growing – wide acceptance
    • GROWTH$
why sell c i i41
Why Sell C.I.I.?
  • Consumer
    • Choice
    • Flexibility
    • Fills gaps for calamitous events
    • Concern about living longer vs. mortality
    • Related to C.I.I. no matter what economic level
    • Asset protection
open forum issues concerns
Open Forum – Issues/Concerns

Now ask yourself the question:

Is there a market for C.I.I.?