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Critical illness coverage: Who needs it?

Sun Life survey shows fear of illness's financial impact outweighs fear of dying

By Elisabeth Boone, CPCU

Back in the 1970s, a handful of insurers used scare tactics to persuade people to buy so-called cancer insurance policies, most of which were long on restrictions and short on benefits. The concept was solid—protect yourself from being financially wiped out if you're diagnosed with a life-threatening illness—but the execution was flawed at best.

All these years later, the fact remains that critical illness can and does drive families into financial ruin, even when they have excellent health insurance. The out-of-pocket costs associated with a serious illness aren't covered by health insurance and can eat up income and savings at frightening speed, sometimes resulting in bankruptcy or foreclosure.

A survey conducted by Sun Life Financial, a leading provider of voluntary employee benefits, produced a startling finding: Almost half (47%) of the respondents said they feared the financial consequences of a critical illness more than dying from one. This fear was accompanied by a disturbing misperception: 36% of those who responded believed they had critical illness insurance at work, compared with an estimated 5% of employees who actually have the coverage.

"This indicates a lack of awareness about what group health insurance does and does not cover," says Tom Gilligan, Sun Life's vice president for voluntary sales. "Of course, group health does cover the medical expenses associated with a critical illness, but employees themselves must pay the often high out-of-pocket expenses they incur. And that doesn't take into account the loss of income for an employee or insured family member who is critically ill."

Conducted in August 2012, the survey was administered by Kelton Research using an online questionnaire sent to full-time workers at U.S. companies with more than two employees. Responses from 4,116 employees were received, representing a sample of U.S. full-time workers across demographics including gender, age, and ethnicity. The median household income of respondents was $51,000, and the median age was 43.

"Well-placed fears"

Employees' fears about the impact of a critical illness on their finances are well founded, Gilligan remarks. In fact, he notes, this apprehension is reflected in the title of the survey report: Well-Placed Fears. He points to these key findings:

• Out-of-pocket medical costs for a critical illness average $7,500. For cancer the average is $6,740; for heart attack, $14,234; and for stroke, $17,860.

• Two thirds (66%) of workers who personally experienced a critical illness had to make financial sacrifices to meet uncovered medical or non-medical costs, despite having health insurance. Some workers borrowed from relatives or friends; others tapped into emergency funds or long-term savings; 12% declared bankruptcy, and 11% said they lost their homes.

• Over one third (37%) of workers who had survived a critical illness were out of work for four months or longer. Such a workplace absence usually forced them to use savings earmarked for future needs such as college tuition or retirement, even if they had disability income insurance.

Financial fears were especially strong among middle-aged and single workers. Twice as many employees between ages 40 and 50 were more concerned about finances than with dying, and four times as many single women earning under $50,000 were more concerned with finances than with dying. Both single workers earning less than $50,000 and single parents earning less than $100,000 were three times more likely to fear the financial impact of a critical illness than the prospect of dying from it.

Among younger workers from age 22 to 39, both single women with under $50,000 in household income and single parents were twice as likely to be more concerned with finances than with dying.

The most feared critical illness was invasive cancer, cited by almost half (48%) of survey respondents. One third (32%) named heart attack, and one sixth (15%) said stroke. More women (56%) said invasive cancer was their most feared critical illness compared with 42% of men, while only 25% of women cited heart attack compared with 37% of men.

"Voluntary group critical illness insurance has evolved into a practical solution for a wide range of American workers." —Tom Gilligan Vice President-Voluntary Sales Sun Life Financia

If you sell it, will they buy?

As the title of the Sun Life survey suggests, people's fears about the financial impact of a critical illness are well placed because, although well over a third of respondents believed they had critical illness insurance, few actually do.

If critical illness coverage were available through their employer, would people be willing to pay for it? The response was an overwhelming "yes," according to the survey report.

When given sample coverage amounts and rates, almost two thirds (65%) of nonsmoking workers between ages 22 and 49 said they would buy critical illness insurance if it were available at their workplace. Specifically, respondents indicated they would purchase a policy that provided $5,000 to $25,000 in coverage, with a monthly premium between $8 and $49.

To respond to this need, Sun Life offers voluntary group critical illness coverage, and the product is gaining in popularity industry-wide as employers continue to shift more of the cost of benefits to employees.

Sun Life offers the coverage in three plans, and Gilligan is quick to point out that the products bear little resemblance to the old cancer insurance policies of the past.

"What we and other companies are offering represents a true evolution of that product," he says. "The old policies were written for individuals on a scheduled basis, and they covered only cancer. The policies outlined medical procedures for which the policyholder would be paid a specific benefit. This policy design was very confusing to individuals who were not insurance literate, and consumers found the policies hard to understand."

In contrast, Sun Life's critical illness insurance is written on a group basis and offered as a voluntary benefit, and it can cover several illnesses in addition to cancer, Gilligan explains. In addition to providing expanded coverage, he notes, the policies have a simplified structure so that covered illnesses, benefit amounts, and other provisions are clearly stated. "I think that's a powerful consumer-focused evolution of the product," he asserts. As a result of these changes, he says, "I think today's policies are much more appealing to both brokers and employers."

Sun Life's three products are critical illness insurance for illnesses such as a heart attack or stroke; cancer insurance; and a combination of critical illness and cancer insurance. Coverage levels are available from $5,000 to $50,000, payable as a lump-sum cash benefit upon diagnosis of a covered condition. The benefit can be used in any way the policyholder chooses—for example, to cover out-of-pocket medical costs, transportation and parking costs for hospital visits, exploratory treatments, or mortgage payments. An optional rider pays a benefit for a new diagnosis that involves a recurring illness.

Depending on the group size and participation, the plans can be offered on a guaranteed issue basis. The plans provide coverage for spouse and children and offer an annual wellness screening benefit. Another feature is telephone access to professionals who can help employees and family members with a range of issues related to a critical illness, from understanding health insurance and coordinating with providers to handling medical bills and other administrative concerns.

Opportunity knocks

As the survey findings show, workers of all ages and income levels are worried about the financial hit they would take in the event of a critical illness. What's more, a significant gap exists between employees who think they have critical illness coverage and those who actually do. These findings create a significant opportunity for employers and their brokers to educate workers about the components of critical illness insurance, provide appropriate coverage on a voluntary group basis, and help employees choose the benefit amount and other features that are best suited to their situation.

"We're strongly focused on talking to our insurance broker customers about the demographics of particular groups," Gilligan says. "For example, how many people in a given employee group are over age 40? People in that 40 to 49 cohort really worry about finances, possibly because they know that if they do experience a critical illness, they'll probably survive. As our survey shows, people fear the financial impact of an illness more than they fear dying. They're happy if they live, but then they have to worry about money problems."

The report on the Sun Life survey presents findings that are startling, even sometimes alarming. Gilligan believes that the precise demographics it contains constitute a road map for insurers and brokers to help employees obtain protection against the devastating financial consequences of a critical illness.

"It's our job to tell people what can actually happen to them, and then target the people in various demographic groups with products that meet their specific needs," Gilligan says. "Voluntary group critical illness insurance has evolved into a practical solution for a wide range of American workers."

For more information:

Sun Life Financial

Web site: www.sunlife.com

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