Your employer client has decided critical illness coverage is critical protection for its workers and their families. But now they’re wondering how much coverage is enough. That’s a great question that many brokers hear. This information can help you guide your clients to find the right amount of coverage to offer their employees.
If a person goes through a serious health event, they’ll want to be able to focus on getting well without having to worry about money. However, even with health and disability insurance, the reality is that being sick affects not only medical health but also financial health. It could take years to recover financially from a critical illness. What’s more, a financial hit takes an emotional toll, which can impact productivity on the job.
Critical illness insurance provides a lump sum of money when an individual is diagnosed with a covered illness. That lump sum can be spent any way the person desires, such as to pay for medical specialists or child care, or even to cover everyday expenses.
The first thing to do is ask your employer client these three questions, and get the cleint to weigh the emotional and psychological benefits that come with each scenario:
1) Do you want your employees’ medical expenses to be taken care of?
2) Do you want your employees to be able to keep up with everyday expenses?
3) Do you want to preserve your employees’ standards of living?
Taking Care of Medical Bills
If an employee is diagnosed with a life-threatening illness, the last thing their family should have to think about is money. Yet the medical bills are likely to start pouring in regardless of the type of medical coverage the employee has. Between diagnostic services, visits to the emergency room, specialist visits, surgeries and prescriptions, one can reach an out-of-pocket limit quickly. And since treatment may span multiple years, the worker might have to pay their out-of-pocket limit more than once.
As an example, Healthcare Bluebook, which calculates the cost of common services in different geographic areas, reports that the range in cost for an emergency room visit in Houston is $1,900-$5,947, and an abdominal CT scan ranges from $240 to $3,100. The cost of mastectomy surgery ranges from $10,400 to $32,515.
Based on common health plan designs and calculations of potential out-of-pocket responsibilities, I recommend providing at least $15,000 of critical illness coverage to cover out-of-pocket costs, surprise medical bills, and transportation to and from the hospital.
Keeping Up With Everyday Expenses
Besides medical expenses, there are also some indirect but significant costs that come with a serious illness. Perhaps the most important is missed income if a person is unable to work.
Disability insurance definitely can help with this. However, disability insurance typically replaces 60 percent of a person’s income at a time when expenses are racking up. Critical illness coverage can act as a supplement, replacing the remaining part of the employee’s wages. Plus, a family member might have to take time off work to serve as a caregiver, so there may be more than one missed income to make up.
The combination of lost income and medical bills can make it difficult to manage everyday expenses. Using national averages of monthly mortgage payments and other important costs, I recommend providing an additional $10,000 in coverage to assist with regular expenses, like mortgage, food and clothing. This brings the total recommended coverage to $25,000 if both medical expenses and everyday expenses need to be met.
Preserving Their Standard of Living
Critical illness also can have a lasting impact on a family’s standard of living, limiting their capacity to save long term. In fact, the Journal of Oncology says the financial consequences of cancer may last several years after the initial diagnosis, negatively affecting the quality of life of the cancer survivor and his or her family. Having enough financial resources such as critical illness coverage during recovery can keep a family’s financial goals on track.
Whether a person wants to save enough to send kids to college, move to a dream house or retire, I recommend providing an extra $10,000 in coverage to help a family stay on track to achieve their goals. This brings the total recommended coverage to at least $35,000 for medical and everyday expenses, as well as preservation of a person’s standard of living.
Higher-income earners who have little liquid assets set aside for financial emergencies might benefit from higher levels of coverage, depending on their personal long-term aspirations.
Some Cost-Effective Solutions
If your employer clients are sold on the value but not the cost of critical illness coverage, remind them that offering critical illness coverage through the workplace is significantly more affordable than if their employees were to buy it outside of work. Many employers choose to pass the premiums along to their workers — which is a good solution to cost concerns. There’s incredible value in simply giving employees affordable access to critical illness coverage.
Another more affordable option is to offer critical illness coverage for employees’ life stages instead of their lifetimes. Unum’s research shows that consumers tend to keep critical illness coverage for three to five years during the life stage they think they need it most. By obtaining coverage for a life stage, it’s easier for consumers to get higher amounts of coverage at a more affordable price.
Critical Coverage for Customers
The cost of a critical illness is a moving target, but the relationship between medical problems and financial problems is hard to ignore. By asking thoughtful questions about what employers hope to accommodate through critical illness coverage, you can help your clients determine the right amount of coverage to offer to their workers.