Critical Illness Insurance 101

Critical Illness Insurance pays living benefits … in one-lump sum … to an individual upon diagnosis of a heart attack, cancer, stroke, kidney failure, terminal illness, the need for an organ transplant, etc.

The key is that payment is triggered by diagnosis. Benefits are not tied to any reimbursement of expenses, like health insurance, and you can use the money in any way you choose … to replace lost income, pay for experimental treatment, pay off personal debts, including mortgages and other ongoing expenses.

There are NO LIMITATIONS on how the money is to be used!

The vast majority of Americans have never heard of Critical Illness Insurance because most insurance agents haven't either! Most agents still prefer to sell mortgage life insurance and yet, according to HUD … only 3% of mortgage foreclosures are the result of death and 48% are the result of a severe financial hardship caused by a serious illness!

A recent study conducted by Harvard University found that 50% of the bankruptcies in America were the result of a medical emergency … and that over 75% of those folks had health insurance at the onset!

You see, you can have the greatest health insurance coverage in America and still get wiped out, because health insurance is designed to cover medical expenses only. It's not going to pay the mortgage or rent, college tuition, car payments, utility bills or buy food for the family. It won't pay your health or life insurance premiums (you better not let those policies lapse when you're critically ill).

This is where the enormous strength of a Critical Illness policy lies … as a source for much needed funds in a time of medical emergency.

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The Critical Illness Insurance Market

In my previous article: Five Steps to Critical Illness Sales Success the first step was to identify your target market. With your target identified you can begin to list the various objectives that can be achieved with the use of a critical illness insurance policy. Some potential markets are:

  • Self employed individuals
  • The family market / Single parents
  • The group insurance marketplace
  • High income earners

While there may be some overlap in ultimate objectives the reasoning behind the objectives will differ. It is impossible to launch an effective marketing campaign without understanding your target market's goals. And without a specified target market it is impossible to fill your calendar with high quality prospects.

The Self Employed

Perhaps no other target market needs Critical Illness Insurance more than the self-employed individual. Unlike an employee of a larger company this individual has no employee benefits other than what he purchases for himself. The objectives of this market segment may include: income replacement, money to hire a temporary replacement employee, money to pay routine business expenses, major medical gap coverage and freedom from managed care restraints. It is important to recognize that the self-employed individual most likely does not have disability income protection whether income protection or overhead expense. The Critical Illness Policy is a viable and less expensive alternative to disability income.

The Group Insurance Market

This marketplace offers numerous Critical Illness Insurance applications. Depending on the group size that you target some of the objectives might be: expansion of voluntary benefits, medical gap plan, executive benefits and expansion of employer-paid benefits. This market is more complicated than other markets because you may have to understand the objectives not only of the employer but that of the employees as well. While the employer must approve Critical Illness Insurance as a voluntary benefit, the producer will still need to understand the objectives of the employees to have a successful enrollment. To open a discussion of Critical Illness Insurance as an executive benefit it is important to understand the value to the executive. The employer market may have numerous challenges but it can be one of the most profitable.

High Income Earners

This category includes doctors, lawyers, consultants and other professionals with incomes above $ 250,000 annually. These individuals tend to have disability income protection but are limited in the percentage of their income that can be protected. Critical Illness Insurance can ensure that they do not have to deplete their savings and investments in the event that they are disabled by a covered illness. Individuals in this category tend to be less concerned with the potential out-of-pocket expenses that may be incurred then they are about protecting their financial future.

The Family Market / Single Parents

The need for Critical Illness Insurance here should be clear. For working Americans, whether in a traditional family or as a Single Parent the need for cash when a family member is diagnosed with a critical illness cannot be overstated. The income replacement needs are far in …

Pros and Cons of Critical Ilness Insurance Coverage

Critical illness insurance is a relatively new type of policy that is frequently misunderstood. Today, we will clarify what it is, and what it covers.

How Does Critical Illness Insurance Work?

Critical illness is similar to term life insurance, except it is paid out when you are diagnosed with an illness covered by the policy, rather than being paid out upon death. However, some people confuse this type of insurance with disability insurance, which substitutes your income if you become disabled.

Illness insurance, like term life insurance, is paid in a lump sum, should you be diagnosed with a pre-defined disease such as cancer. You decide how this amount will be spent – some people put it into additional medical treatment (especially if there are some treatment methods that are not covered by provincial healthcare), others decide to take time off work to spend with family, or to travel.

As with many insurance products, this type of insurance plan comes with an extensive insurance quote, application and underwriting process that the insurer analyzes before you can get a policy; and as with any insurance policy, a critical illness policy comes with both pros and cons.

Let’s take a closer look at the pros and cons of this type of insurance.

Pros of Critical Illness Insurance

There are several positive aspects:

  1. Funds that can help where needed: The lump sum you receive if you are diagnosed with a critical illness will allow you to get better treatment and, hopefully, fully recovery in some cases. You can also spend these funds on other needs or projects (such as travel or taking items off your bucket list).
  2. Protection for your own business: If you have your own business, you might need to work part time, after being diagnosed with a critical illness (reduced work hours are common when extensive medical treatment is required). It closes the financial gap created by your reduced hours at your company. With the funds, you could hire somebody to help out with your business.
  3. Stackable protection: Unlike disability insurance, critical illness coverage is “stackable”. With disability insurance, coverage is limited because it is based on your income, and you cannot go over that limit even if you have several disability policies. You can, though, have several policies with varying coverage amounts of different diseases. If you have, for example, two policies with benefits of $250,000 and $300,000, you can get a $550,000 payout when you make a claim.

Cons of Critical Illness Insurance

  1. Expensive: This type of insurance policy is not cheap. As an example, a Term 10 insurance policy with $500,000 coverage (Term 10 means a policy that covers you for 10 years) for a 35-year old non-smoking male without any pre-conditions costs around $180/ month (exemplary quote) whereas a Term 10 life insurance policy with coverage of $1,000,000 for the same person costs around $50.
  2. Definitions matter: If a diagnosed disease, such as a heart attack, is not aligned with the definition of this illness in

Financial Planning – Five Critical Steps in Financial Planning

1. Gather and Prepare Your Personal Financial Situation Status Quo

This kind of information can depend a lot on you as an individual, but it usually has to do with …

– your investments,

– your insurance policies (life, health, long-term care, property, liability, etc.),

– your retirement benefits,

– your tax situation (income tax, estate tax, gift taxes, etc.),

– your will or trust,

– your other estate planning information,

– your powers of attorney,

– any other financial information or documents you may need.

It's helpful for you to put together some simple personal financial statements. These can be much like those that are used in business. They might include your personal balance sheet, an income statement, and other relevant statements.

In the case of a balance sheet and income statement, the assets and liabilities, as well as your income and expenses, are included in the statements. These can be combined, for example in the case of husband and wife, or separate income statements and balance sheets could be put together for each person in your family.

If you are using a professional, they may have forms already made up that you can use for these purposes.

2. Identify Your Goals and Objectives

This will take some thought, and is one of the most important foundations to your financial planning.

Put some time and thought into it, and the rest will fall into place much better.

3. Compare Your Current Scenario With Alternative Ways To Handle Each Part of Your Financial Planning

Relate it to your goals and objectives. Get the advice and information you need from others, including professionals, and make decisions for changing what is the status quo.

4. Develop and Put Into Place Your Plan

Not someone else's plan, but YOUR plan.

Putting together the facts of your current situation, your potential future situation, your goals and objectives, and looking at those alternative ways of handling your case, you can lay down a plan that, while flexible, will act as a map for your future years in planning your finances.

5. Review and Revise Your Plan As Needed Periodically

Don't think of your plan as carved in stone. Things change. Circumstances change. YOU change.

There may be family occurrences like marriages, divorces, deaths, births, changes of occupation, varying economic conditions, and many other things that enter into making financial planning decisions.

Put these five steps into play, and you'll be glad they did. Read more. Absorb lots of information. But don't let it paralyze you. Information plus action will take you a long way.

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