Critical-illness insurance is group product champion

Jun 19, 2006 @ 12:01 am

By Gary S. Mogel

NEW YORK - Group insurers have crowned critical-illness insurance the new growth champion, but former group champ universal life still is going strong on the individual side.

Critical-illness insurance - covering medical and living expenses from cancer, heart disease and other conditions listed in the policy - was group insurers' top growth product, supplanting employer-provided universal life insurance, according to a 2006 biennial study released this month by Eastbridge Consulting Group Inc. in Avon, Conn.

Sales of critical-illness coverage increased by 13% in the workplace, compared with the amount cited in the 2004 study.

But universal life is alive and kicking on the individual side, noted a study released this month by LIMRA International in Windsor, Conn. That study found that strong universal-life growth was the main reason for a 15% jump in first-quarter individual-life sales, compared with the amount during the year-earlier period.

"Critical illness was the only product named by more than half of the carriers as an industry growth product," said Gil Lowerre, president of Eastbridge. Interestingly, a third of the companies also identified critical illness as a product that grew less than they expected, he noted, indicating room for even more growth.

Major insurers that offer the policies include: MetLife Inc. and American International Group Inc., both based in New York; Allstate Financial Group in Northbrook, Ill.; and UnumProvident Corp. in Chattanooga, Tenn.

Insurers market the critical-illness policies as a "gap filler" to cover ex-penses - such as the cost of experimental treatments, and mortgage and tuition bills - that may slip through the cracks of health, disability and long-term-care insurance.

However, many advisers have yet to be convinced that such insurance is needed, whether sold on a group or individual basis.

Most clients are covered sufficiently for critical illnesses by their health and disability insurance plans, noted Jeremy Benoit, a registered representative who manages $35 million in assets for Concord, N.H.-based New England Employee Benefits Co.

Also, some types of life insurance allow clients to access a portion of the death benefits if they have a critical illness, according to Dan Brooks, a principal of Lake Worth, Fla.-based Brooks Financial Advisory Group Inc., which manages about $15 million.

Critical-illness insurance's somewhat unsavory past - it morphed from high-priced "cancer insurance" that some regulators and other industry observers thought played on people's fears - also is on some advisers' minds.

UL won't die

Just 11% of the group insurers viewed universal life as a top-line growth product, the Eastbridge study concluded. But it was a different story for universal life sold to individuals.

Universal-life sales picked up in the first quarter due to stock market gains, which made advisers and clients more comfortable with variable products, according to Elaine Tumicki, corporate vice president and head of product research at LIMRA.

Also, rising interest rates are expected to bolster universal-life sales for the remainder of the year, said Gary Chard, a Rochester, N.Y.-based senior financial rep with The Principal Financial Group of Des Moines, Iowa.

Universal-life sales last year were lower than they might have otherwise been, because of concern over potential changes to reserve requirements, according to LIMRA. This month, the National Association of Insurance Commissioners in Kansas City, Mo., issued a staff counsel opinion that each state insurance department should decide whether to permit the use of lapse rates in setting loss reserves for universal-life policies with guaranteed death benefits (InvestmentNews, Jan. 12).

Term life and whole life showed more modest increases - 5% and 3%, respectively - in LIMRA's study. Growth of such fixed-premium products was hampered by uncertainty over the estate tax, which often is funded by these types of life insurance, the study pointed out.

But this year is shaping up as a lot better than 2005 for almost all types of life insurance.

"This time last year, sales of all products were down, except for universal life," Ms. Tumicki said. The greater prevalence of premium financing, and investor- and corporate-owned life insurance, this year also is spurring individual-life sales, she added.

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