Critical illness insurance not ‘one size fits all’

At first glance, it seems like “critical illness” insurance, which has started to be marketed in the United States in the past year, would be the perfect insurance product. If we were to be afflicted with a heart attack, cancer or a number of equally serious conditions, wouldn’t it be nice if an insurance company gave us a large lump sum of money to deal with it as we saw fit?

Critical illness insurance, “hugely popular” overseas, according to Jay Drucker, a vice president at Mutual of Omaha, only recently has begun to be marketed here. Available in the United Kingdom since 1987 and in Japan since 1992, Drucker says, “Insurance companies are one of the more conservative industries, and we tend not to move quickly when introducing a new product.”

Mutual of Omaha is one of the few companies, so far, to offer it in the United States. In that company’s case, it wanted to be sure not only that people would be interested in the product, but that carrying such a product would not be financially risky. “We’ve teamed with Swiss Re-Insurance,´ said Drucker, “which not only has experience with the European market, but also helps us spread the risk.”

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What does critical illness cover, how does it work and what does it cost? Like just about everything connected with insurance, there’s not a “one size fits all” answer.

Gender, age, previous health conditions and current state of health all play into the equation, and there are several sheets filled with small-print charts to calculate each individual’s rate and terms.

But, for a quick example, if a healthy, non-smoking female in her late 50s wanted to buy a $50,000 lump-sum protection policy to be paid if she developed Alzheimer’s, blindness, life-threatening cancer, deafness, heart attack, major organ transplant, Multiple Sclerosis, paralysis, renal failure or stroke, it would cost her $60 per month.

If she had been diagnosed, however, with any of the foregoing at any point in her life, she’d be ineligible for this coverage. And, if she were a smoker, it would cost her twice as much.

The devil, as the cliché goes, is in the details. In order to receive payment for any of the above critical situations, the first diagnosis must be made after the policy is in place. There are no riders to exclude any of the above conditions; if a person has had any experience with any named condition, coverage is denied.

Also disconcerting is to consider how far, for instance, $50,000 would go toward coverage of the named ailments, much less toward any of the consequences of such illnesses: prescription co-payments, home alterations, meal preparation, child care … the list goes on and on, without even factoring in loss of income. The sum of $50,000 is a nice amount of change in some contexts, but not in this one. Lump-sum payment policies, of course, can be purchased for up to $750,000, but the premiums rise concomitantly.

It’s instructive, at the turn of the century – much less the millenium – to look back to see the diseases that were the major killers 100 years ago and to project what they will be 100 years from now.

In 1900, the most-feared diseases, because they were the leading causes of death, were pneumonia, tuberculosis and influenza. Medical science has made these non-issues almost worldwide. In their places, heart disease, cancer and stroke accounted for 62 percent of deaths in 1996. Maybe by 2100, they’ll be non-issues also. In the meantime, there’s critical illness insurance.