Earn client trust on CI’s finer points

Worried patients take extra comfort with a doctor who appears fully conversant in all of the implications of the latest drugs. So too, an insurance broker’s clients and potential clients will be more comfortable with critical illness insurance if the broker demonstrates up-to-date knowledge of all clauses, especially those most relevant to their situations.

Several clauses in CI policies seem little-known, partially because many advisors do not actively sell the product, according to Corry Collins, a 25-year veteran insurance broker and principal at Halifax-based Maritime Wealth Management Inc.

Topping his list of little known facts is the early benefits clause. In addition to proceeds paid for conditions listed as critical illnesses, this clause will provide benefits for less severe conditions, some of which can indicate more serious illnesses to come. But this is a relatively recent arrival on the CI scene, according to Collins.

The clause goes by different names with different insurers. Canada Life Assurance calls it the Illness Assist Benefit, RBC Insurance calls it the Early Assist Benefit and Great-West Life Assurance calls it the Supplementary Benefit.

Typically, the benefit provides for payment of 10% of the face value of the policy. As with everything else, insurers set limits on the payouts. Canada Life and Great West Life have a maximum of $25,000, while RBC has a maximum early payout of $50,000, even where the policy’s face value exceeds $500,000.

This clause will cover situations in which the patient requires angioplasty, an operation which widens a narrowed artery by inserting a balloon. The procedure is considered less intrusive but equally as effective as coronary artery bypass. As well as heading off potentially greater problems, the angioplasty procedure is also less exhausting to the patient, since it can often be performed with local anesthesia. It is also less time-consuming, since it requires less recovery time than bypass surgery.

Low risk patients can conceivably return to work within one or two days after the procedure, while full bypass surgery patients require may recovery a month or more for full recovery. The policyholder could conceivably receive a lump sum payment while missing only a few days’ work. This amounts to a greater benefit for self-employed than regular salaried individuals since the former will generally return to work as soon as possible while the latter will likely have accrued sick day benefits. In either case, the policyholder may not need the funds, but can invest them as an addition to the savings portfolio, Collins suggests.

This benefit usually also pays out upon written diagnosis of ductal breast cancer, early stage prostate cancer and superficial malignant melanoma, a form of skin cancer that can become fatal if not caught in time.

The benefit does come with limits in addition to the dollar value. In some cases the insurer will deduct this payment from any future payout for one of the specified critical illnesses. RBC Life Insurance does not deduct the early benefits payout from the face value of the policy.

Another little known fact is that the definition of smoking for CI purposes also varies between insurers. Canada Life allows up to 52 cigars annually before placing the policyholder into the smokers category, while RBC Life Insurance restricts the non-smoker definition to those who have refrained from “regular” tobacco consumption for one year but allows exceptions, such as the proverbial one cigar per month on special occasions.

This kind of distinction underscores the urgency of asking underwriting questions exactly as they appear on the application, Collins points out.

(Companies selling CI have different approaches to requiring medical examination, taking into account factors such as the policy’s face value and age of the client. Where the insurer requires an examination, medical personnel check for cotinine, a tobacco by-product, to verify statements about tobacco consumption.)

But not all “little known facts” work to the client’s advantage. Most insurers have a 90-day exclusion clause for cancer, meaning that if the individual is diagnosed within 90 days of contract settlement, he or she is not covered for that ailment. This addresses what insurers call anti-selection, a situation in which a client starts to feel ill and looks for coverage before getting a formal examination or diagnosis. For the broker this underscores the importance of explaining such distinctions to the client in order to avoid misunderstanding at a later date.

Grasping these little known facts can pay dividends. Clients become more comfortable with the broker’s expertise and value the broker’s ability in matching coverage to their situations, Collins says.

Al Emid, a Toronto-based financial journalist, covers insurance, investing and banking.

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