The best time to discuss death, disability and dread disease insurance with your client is today!
This conclusion is 'borrowed' from a presentation by Professor Stephen Jurisich, titled "The Consequences of Dread Disease." His talk was part of a Liberty Life initiative to bring intermediaries up to speed on topical issues in the life insurance space.
Dread disease is "an illness or event that precipitates a major health crisis, the survival of which is a life-changing event," says Jurisich. The 'big four' in this category are heart attack, stroke, cancer and coronary artery bypass grafts (CABG). Insurers realise the financial impact of these illnesses and have designed products to soften the blow.
"Dread disease insurance protects you against the financial consequences of surviving a dread disease," says Jurisich. The typical policy pays a lump sum on the first diagnosis of a listed dread disease.
The dread disease policy trigger
It's essential that intermediaries understand the type of risk covers available. Dread disease should not be confused with expense reimbursement, disability cover, medical aid or terminal illness acceleration products. Jurisich notes that "dread disease insurance is triggered by a subset of illnesses that have life changing consequences.
"The actual conditions covered depend on the market need for the cover, competition among insurers and the policyholders' perceived value of the benefits offered," he says. US-based insurers list hundreds of events in addition to the four majors, while Liberty Life's Living Lifestyle product covers 27.
Challenge for brokers
The major difficulty for intermediaries and their clients is to unpack the various definitions applied by the different product providers. Definitions have to be "tight enough, robust enough in the light of changing diagnostic technologies and applied consistently between companies," says Jurisich. If not, there will be endless confusion at payout stage.
Product providers face a continually changing environment. Pricing dread disease insurance is difficult due to technological advances. The major challenges include earlier detection of dread disease illnesses and increases in survivorship. A few decades ago diagnosis of one of the four majors was practically a death sentence. Nowadays people survive for longer periods and enjoy a much better quality of life.
Premium escalations unavoidable
The only certainty with dread disease insurance is that it will become more expensive over time. You can best grasp this reality by considering the model used by insurers to price the cover. Dread disease insurance is simply the product of "the probability of suffering a dread disease" and "the probability of surviving the survival period." And the probabilities on each side of the equation are on the rise.
With each passing year, the probability of diagnosis is higher. There are three factors responsible for this – lifestyle, reduction in causes of accidental death and medical technologies which allow earlier detection and diagnosis. And medical advances mean that probability of surviving the survival period is increasing too! The result is that the price of dread disease insurance is going to skyrocket, particularly for cancer, CABG and stroke.
"You need insurance because you are going to live, not just because you are going to die!" says Jurisich. He warns that changes in technology and lifestyle will make the requirement for this type of cover more important with each passing year. "As advisors, you need to speak to your clients about their dread disease and disability income needs as soon as they start to work. As family responsibilities and assets grow, the need for life cover becomes critical too!"