Accident Life Insurance

Are expense charges consistent for new and existing critical illness insurance policies the same type? If they are not, this is an indication that old policyholders are subsidizing the company’s attempt to capture new business.

Do expenses vary by underwriting class or product? This is reasonable only if justified by a company’s actual or reasonably anticipated experience. Otherwise it is an indication of overly aggressive marketing and subsidization of the product with the lower expenses.

Are expenses, in an illustration that discloses them realistic and adequate? If not, it is likely they will be subsidized by higher charges for mortality or a lower interest-crediting rate. Conversely, an unrealistic and overly aggressive projection of mortality charges could be offset by higher expense charges, or, again, a lower interest rate.

Persistency is a measure of how long a critical illness insurance company’s policies are staying in-force (active). This is an important consideration for critical illness insurance companies and has an impact on them. Many policy owners fail to keep their policies in-force long enough to realize the intended benefits. Another word used for a policy that terminates is ‘ lapse”. Poor persistency is a perpetual problem for the critical illness insurance industry. When critical illness insurance policy owners terminate their coverage prematurely, it can result in a loss to the company, especially on permanent policies that have only been in-force for a short while. Regulators and rating agencies closely monitor company persistency. If a company has a high level of early lapses (the same as a low persistency rate), then there is a problem somewhere. Watch out if this is the case with a company you plan on applying to.

Traditionally, a critical illness insurance product will generate a series of annual rains in policy years after the first year. These gains are used to make up for the loss that the insurance company usually faces in the first year, when expenses are highest (mostly due to commissions, underwriting rd policy issue). It can take 10-20 years for a policy to break even.