POLICY PAYS OUT IN CRITICAL ILLNESS

A newly introduced group insurance policy provides lump-sum cash payments for employees with critical illnesses.

The "Living Options" policy pays a policyholder a lump sum after he or she is diagnosed with a critical illness, such as cancer.

Fountain Valley, Calif.-based PM Group Life Insurance Co. designed the policy to reduce the monetary concerns of individuals with serious medical conditions and to allow employees enrolled in health maintenance organizations to see physicians not on their HMO rosters.

The money also can be used to pay expenses not covered by medical or disability insurance.

The Living Options policy is offered three ways:

* Voluntary, in which the employee pays 100% of the premium.

* Employer-paid, in which the employer pays 100% of the premium.

* Combination basis, with employers paying for a core plan and employees having the option to buy additional coverage.

The average cost is 50 cents per month per $1,000 worth of coverage. Actual costs are based on age. The older an individual is, the higher the cost.

PM Group, the employee benefits subsidiary of Pacific Life, developed the policy because it saw gaps in traditional life, medical and disability insurance, said Brian Goebel, PM Group's vp -marketing and product development.

"You might have traditional insurance that covers medical bills, but the survivors of a critical illness have a financial burden that's not covered," he said. "That's what we're trying to emphasize."

"Disability only replaces a portion of your income, and people incur additional expenses," Mr. Goebel said. Living Options pays for modifications individuals may need for their cars or homes or for caretakers. It supplements disability coverage, he said.

PM Group defines a critical illness as a medical condition that causes a high percentage of deaths and results in financial impairment. The policy has a waiting period before survivors can receive money.

In most states, an individual must survive 30 days after being diagnosed with a critical illness. In some states, the policy pays a smaller benefit to the estate of those individuals who do not survive 30 days.

The policy has been approved in California, Colorado, Ohio and Oregon. Approvals are pending in several states, including Illinois and Texas. PM Group doesn't know of any other policies like Living Options available in the United States, though the coverage is popular in South Africa and the United Kingdom, said Mr. Goebel.

There are three levels of coverage under the policy. Plan 1 covers cancer. Plan 2 covers cancer, heart attacks, strokes, kidney failure and major organ transplants. Plan 3 covers all of the conditions covered in Plan 2 as well as paralysis, loss of limbs, blindness and deafness.

There is no minimum amount of coverage that must be purchased. Typical offerings under the voluntary plan are in increments of $25,000. The maximum coverage is $150,000 or three times the individual's salary, whichever is less.

Under the employer-paid plan, costs depend on the number of employees and the dollar amount of the policy. When employers pay the full premium, all their employees have the same level of coverage -- whichever the employer chooses. The premium rate for voluntary and employer-paid plans is the same.

Living Options, available to employers with 50 or more employees, was introduced last month. No policies have been sold yet, but PM Group expects its market to be large.

Benefit consultants say that while employers may make the plan available to employees, companies are unlikely to pay the cost.

"I see a big perceived need from the employees' side," said Rich Stover, a principal at employee benefit consultant Buck Consultants Inc. in Secaucus, N.J. However, Mr. Stover said, "I don't think employers see this as a critical need, and they aren't looking to add benefits at their cost."

"Our clients wouldn't be interested because they're larger employers," said a spokeswoman for employee benefit consultant William M. Mercer Inc. Mercer clients already offer their employees disability insurance, and employees have the opportunity to increase their coverage if the need arises, she said.