Using CI Insurance as Part of a Well-Rounded Protection Strategy

It’s most powerful when used in conjunction with other products that provide solutions to complications that arise with the diagnosis of an illness.

By Ross Vanderwolf, CFP

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Financial advisors can leverage critical illness (CI) insurance products as powerful tools in the overall strategy they use to protect their clients from the financial complications that come with the diagnosis of a debilitating disease. This niche product continues to grow in popularity in Australia and is considered essential despite market shifts that complicate advisors’ sales strategies and clients’ ability to qualify for competitive premiums. Products have changed in response to mergers in the industry, increases in prevalent diseases and health-care costs. The result is a confusing and challenging landscape to navigate.

CI insurance is most effective when it is combined with other products, such as life insurance, income protection and total or permanent disability income insurance, to create a safety net that covers the client from multiple angles. Just as those products protect families in case of lost life, job or physical ability, trauma insurance helps protect against the financial burden of an illness. A variety of costs may arise, and the policy payout can be used to offset them.

Policies boast blanket coverage against life threatening illnesses and lump-sum payout upon diagnosis; so there is no discrimination or technicalities. With changes in the marketplace and a high number of policy payouts for exceedingly common types of cancer, policies now require stricter health screenings. Clients are screened for family or personal histories which, if present, can make underwriting tougher; some policies now enact strict exclusionary policies or have prohibitively high premiums. It’s important for clients to secure coverage as soon as possible, especially when age and health reduce their chances to qualify.

Sales tactics for CI insurance

The first step in selling CI insurance is to explain the potential financial burden that clients may face upon diagnosis. Identify what needs would arise and roughly how much it would take to fund those needs. Often, our clients are unable to perform their roles once they’re diagnosed and begin treatment. Some may wish to pay off their mortgage while others may want to hire help around the house, pay bills, etc. Some may anticipate higher medical bills than they can afford. With cash on hand, families have more flexibility to secure needed services, pay bills, run a household and cover their families’ needs. Because the policy prevents a financial emergency from occurring, it safeguards clients’ financial livelihood and investments.

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Because CI insurance offers a powerful protection against financial loss, failure to advise clients about it is a potential liability.

Compliance and regulation often drive advisors through the sales process, as a way to protect their practice. Because CI insurance offers a powerful protection against financial loss, failure to advise clients is a potential liability. It’s best to educate clients on the benefits of the product, how it would help them and potential scenarios they may face after a diagnosis. Advisors make a sale if they are interested, and clients can sign a waiver if they wish to deny coverage. If clients are unfortunately diagnosed with a covered disease, they may sue you for malpractice. With proof they were educated about the risks but chose to deny coverage, you’re able to protect yourself.

Trends and challenges

The Australian insurance market is small and is home to few policy underwriters. While competition in the market is strong, international mergers and consolidations have, and will continue, to change the number and types of products offered overall and in the critical illness specialty.

Fluctuating policy costs bring an added level of uncertainty for advisors. CI insurance policies are offered on a term structure, rather than permanent. Premiums increase along with age and health issues. Although medical advancements help people live longer lives, they’re still at risk for serious illnesses and trauma. After age 50, premiums become increasingly expensive as health generally deteriorates. It’s never guaranteed that clients will continue to carry the same level of protection in the face of escalating coverage costs.

Like any insurance product, CI insurance is not a universal magic pill for clients’ financial-protection strategy. It’s most powerful when used in conjunction with other products and policies and designed to provide a solution to complications that will arise with illness diagnoses. Help your clients understand their needs, and together, you can help protect their family.

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Ross Vanderwolf, CFP, of Fortitude Valley, Queensland, Australia, is the first vice president of MDRT. He is a 30-year MDRT member with nine Court of the Table and seven Top of the Table qualifications. A 36-year industry veteran, Vanderwolf is managing director of Rothgard Financial Partners, a full-service financial-planning practice. He has been recognized as one of Australia’s Most Trusted Financial Advisers since this designation’s inception in 2014.