CI and DI: Enhancing Your Client’s Benefit Package

As an Advisor, you probably get this question all of the time: which is more important, disability or critical illness insurance? But as an Advisor, you also know that both types of insurance can be equally important and most clients should have both in their insurance portfolio.

Disability insurance (DI), whether part of a group plan or even as a stand-alone policy, generally will not cover a client’s full income. This is a concern since out-of-pocket expenses typically increase anytime something medically prevents people from working for an extended period of time. Likewise, any additional supplemental costs may only partially be covered by your client’s health insurance – depending on their coverage. Your client could be faced with a shortfall even with full disability coverage; this is where critical illness (CI) can help fill the gap.

Medical expenses currently rank as the number three cause of bankruptcy in Canada. Despite this, CI sales continue to get outpaced by life insurance quite dramatically in Canada. In fact, in 2022, only 8% of insurance applications were for critical illness insurance.

This gap signifies an opportunity for you, the Advisor. Below are some typical concerns that your client may express and how to address them when discussing the prospect of bundling CI with a DI policy:

I already have disability insurance; do I need critical illness too?

Your client has existing DI coverage already – that’s great! However, since they are fundamentally different products with different claim triggers, consider the possibility of claim for each. Would the disability pay out if the illness returns them to work before the elimination period? Would the critical illness pay out if they are off work due to an injury? Even if one pays out, will the income be sufficient? If both policies paid out, it wouldn’t be the worst thing that happened, and it would also help to support any increase in monthly expenses, whether caused by inflation or unexpected medical expenses. Remember, despite the overlap, both products cover off very different needs.

Critical illness insurance is too expensive!

Insurance companies price their products according to risk. If there’s an elevated risk we can expect higher premiums, whether it’s related to age, health status, or in this case the product having a higher claims rate.

Regarding how to approach this with a client, discuss how they can fit it into their budget at a price point that they are comfortable with. Sometimes, Advisors jump straight to a T75 with return of premium (ROP) and a $100,000 benefit because somewhere along the way, this became the industry approach. And while longer term products with ROP features may look attractive to some, for many people they are too costly. Looking at term insurance for CI is a very viable option. Likewise, compared to life insurance renewals, the premium renewal jumps are relatively less significant. There have in fact been cases where the first renewal cost is LESS EXPENSIVE than a new attained age quote (so unless premiums go down over the next 10 to 20 years, this can actually lock in a better rate for some).

How much CI is enough?

There is no right answer to this question but many successful Advisors can, for example, either focus on a multiple of income (like 1 to 2 times annual salary), expenses over a fixed period, or whatever fits the client’s budget. It’s much more difficult to do a needs analysis on CI than life insurance as there are more moving parts such as recovery period, cost of procedures, medication, unpaid leave from work, etc. Regardless of what method used, even some CI coverage is better than leaving your clients completely at risk – even if it’s $10,000, this amount could make a difference, be a  relief, between when their income ends and their DI begins.

I will self insure.

Using personal savings, family income, or taxable investments such as RRSPs may seem like a good idea but typically it becomes the more costly way of dealing with additional expenses. Simply put, self insuring is generally not the better option.

Nothing is going to happen to me!

Manulife has a tool called What’s Your Risk, which takes industry statistics and calculates the odds of a life, CI, or DI claim for a specific client based on their situation. It’s a good exercise to go through with your younger clients (or yourself if under 50).

In fact, go over your own reporting over the last few years to explore what percentage of sales included some component of critical illness. Once you have these stats, go back to your clients that have not yet acted on this need. Also consider going back and looking at your files to review whether an injury or illness could derail any planning you’ve done for your clients. If you haven’t been talking about CI or DI, now is the time to consider their many benefits and have those valuable client conversations.

PPI offers a number of client-friendly tools and calculators that you can share with your clients to help start those important conversations – check them out on The Link Between, then share!

Need help running insurance reports or have questions concerning your client’s insurance options? Contact your local PPI Collaboration Centre.

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Enhancing Your Benefits with Critical Illness and Disability Insurance