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Critical illness cover a cushion during crisis

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Adding critical illness insurance to voluntary benefit packages can blunt the financial risk that employees assume when they enroll in high-deductible health plans, and it's a key reason for the upswing in employer demand for this cover, experts say.

Twenty percent of private employers with more than 10 employees offered critical illness coverage as a voluntary benefit to their nonunion workforces in 2014, up from 11% in 2002, according to LIMRA, a financial services research organization based in Windsor, Connecticut.

Introduced in the United States in the late 1990s, critical illness policies have evolved from niche products to mainstream voluntary benefits.

Employers are looking for ways to close gaps in coverage left by high-deductible plans, said Cindy Santangelo, Gold River, California-based voluntary benefits consultant at Edgewood Partners Insurance Center, which does business as EPIC.

“Critical illness insurance is one way to provide that additional financial protection,” she said.

Employees diagnosed with life-altering conditions often face a 90-day waiting period before they can collect disability benefits, said Daniel Pisetsky, Old Lyme, Connecticut-based president of U.S. Living Benefits and vice president of public relations and founder of the National Association of Critical Illness Insurance. In the meantime, they're piling up bills for tests and treatments.

“Wouldn't it help to maybe have $5,000, $10,000 of coverage to help you with those expenses that disability's not covering at that point?” he said.

Critical illness insurance kicks in on a diagnosis of cancer, heart attack or stroke and often includes benefits for other debilitating conditions, including kidney failure, paralysis and burns.

Policyholders who file claims typically receive a lump-sum benefit to spend however they see fit.

Insurers market these policies as a financial safety net that employees can use to cover deductibles and copayments or experimental treatments, or to make rent or mortgage payments.

Some policies offer partial payouts for heart bypass surgery and cancer that has not spread, among other procedures and conditions. Some provide a cash benefit for preventive health screenings. And most insurers offer a recurrence benefit, which pays a percentage of the lump-sum amount for, say, a second bout of cancer, and is often called a restoration benefit when it applies to heart conditions. So most policies no longer lapse after a policyholder receives a benefit for a covered malady.

“Critical illness provisions vary widely across the industry, so no two products are identical,” said Stephen Rowley, vice president at General Re Corp. in Stamford, Connecticut, a reinsurance unit of Berkshire Hathaway Inc.

Premiums can vary significantly based on factors including age, gender, benefit triggers, premium structure and how the policy is underwritten, he said.

Suffice it to say that many employees can purchase a $10,000 to $20,000 benefit for $15 to $20 a month, Mr. Pisetsky said.

Heather Lavallee, Minneapolis-based president of employee benefits at Voya Financial Inc., a New York-based provider of retirement and investment products, has seen “a real uptick in demand” from employers, insurance brokers and benefit consultants for critical illness insurance.

Employees still want to receive their benefits in the workplace, and they want more choices, she said.

Between 2010 and 2014, insurance premiums from new sales of group and individual worksite policies nearly doubled, according to General Re's annual Critical Illness Insurance Market Survey. All 59 respondents to the 2015 Gen Re survey said they will maintain or increase their focus on critical illness over the next three years.

Joe Torella, president of the New York-based Eastern region of Hub International Ltd., encourages employers to adopt a three- to five-year benefits strategy that bundles medical, ancillary and voluntary benefits such as critical illness.

A 25-year-old starting a family may be more inclined to pick up accident insurance, while 40- and 50-somethings may be thinking about critical illness.

“You really want to build a program that takes people through their life cycle,” Mr. Torella said.

Brooks Brothers Group Inc. in New York added an individual critical illness insurance option five or six years ago, long before it rolled out a high-deductible health plan.

“This was offered more from a paternalistic standpoint … We feel it's important to offer it,” said Jonathan Theroux, the clothing retailer's Enfield, Connecticut-based director of total rewards.

Today, roughly 80 of Brooks Brothers' 2,200 benefit-eligible employees, or fewer than 4%, buy the coverage, which Mr. Theroux said speaks to the challenge of communicating a complex benefit to employees.

“It's not as simple as saying, we offer a vision plan, you wear contacts, you probably should be in this plan,” he said.

Participation in voluntary benefits is notoriously low, but to snag a group rate policy, insurers look for 10% to 25% of those eligible to enroll, EPIC's Ms. Santangelo said. Insurance products offered on a group chassis generally offer better pricing than individual policies offered through the worksite. Smaller companies that include a critical illness benefit tend to offer individual worksite policies.

“If it's something that our clients are going to offer, we make sure there's a really strong (educational) campaign,” including multiple “touch points,” such as videos, webinars, email blasts and mailings to employees' homes, she said.

Most critical illness policies are true voluntary plans, fully paid by employees who elect coverage, consultants said. But some employers are subsidizing the premium or paying for a minimum benefit, say $5,000, and allowing employees to buy additional coverage.

Among private employers with 10 or more nonunion workers, the percentage paying some or all of the premium has more than tripled between 2002 and 2014, to 30% from 9%, according to a LIMRA representative. Mr. Pisetsky sees insurers enhancing benefits to set themselves apart from the pack of roughly 40 to 50 companies that offer critical illness insurance in the United States.

Trustmark Insurance Co.'s critical illness product, for example, offers a payout for policyholders caring for a family member.

A few insurers, including UnitedHealthcare, are offering coverage for chronic conditions, such as Alzheimer's and Parkinson's diseases. But others shy away from such coverage because they don't know how to price it, Mr. Pisetsky said.

“I think that's a gray area right now,” he said.