CRITICAL DIAGNOSIS INSURANCE

David R. Beard, ASA, MAAA, CLU AVP, Product Development EMC National Life Company

Course Objectives



Most Common Covered Illnesses



History



Concept of Product



Alternative Product Designs



Underwriting



Rates



Benefits



Markets

EMC National Life Co.

2/23/07

Incidence of Critical Illness

• • •

About 1,400,000 new cancer cases are expected to be diagnosed in 2006.* On average, every 45 seconds someone in the United States has a stroke.** About every 26 seconds an American will suffer a coronary event, and about every minute someone will die from one.** * ** American Cancer Society. Cancer Facts and Figures 2006. Atlanta. American Cancer Society, 2006.

American Heart Association. “Heart Disease and Stroke Statistics – 2006 Update.” Circulation. Dallas: American Heart Association, 2006.

EMC National Life Co.

2/23/07

Survival Rates

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70% Heart Attack Victims Survive At Least Three Years

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75% Stroke Sufferers Are Still Alive One Year Later

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The 5-Year relative survival rate for all cancers diagnosed between 1995 and 2001 is 65%.* * American Cancer Society. Cancer Facts and Figures 2006. Atlanta. American Cancer Society, 2006.

2/23/07 EMC National Life Co.

Paying for Critical Illness

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90% Dependent Upon Caregivers

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Savings And Borrowed Funds Subsidize Care

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Critical Illnesses Create Heavy Emotional And Financial Burdens

EMC National Life Co.

2/23/07

Introduction and Facts About Critical Illness

Harvard Law School Study, February 2005 •

Half of all bankruptcies in America stem from high medical expenses. Among those whose illnesses led to bankruptcy, out-of-pocket costs averaged $11,854 even though 76% had medical insurance when they fell ill.*

2/23/07

* Wegner, Jonathan. Critical Illness Policies Sell, But Some Question the Need. Omaha World Herald 4 Jun. 2005: 01D.

EMC National Life Co.

Can You Survive Financially?

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33% of Families Deplete All Or Most Of Their Savings As A Result Of A Serious Illness

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67% Of All Cancer Related Costs Are Indirect, Non-medical Expenses

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Experimental Medical Treatments May Not Be Covered By Your Health Insurance

EMC National Life Co.

2/23/07

History of Critical Diagnosis



Dr. Marius Barnard of South Africa

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Concern About Financial Impact On Patients

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Concept Spread To United Kingdom, Japan, Australia

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Introduced in Canada And United States During Late 1900s

EMC National Life Co.

2/23/07

Introduction of Critical Diagnosis/Illness Insurance

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Critical Illness coverage was first offered in South Africa in 1983.

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More than 70 carriers in the United Kingdom offer Critical Illness with over $100 billion in sales since its introduction in 1987

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Over 500,000 policies were sold in the first 10 months available in Japan

EMC National Life Co.

2/23/07

The Concept



Upon Diagnosis



What The Product Is Not

–

Terminal Illness Rider

–

Viatical Settlement

EMC National Life Co.

2/23/07

Traditional Products Not the Answer…

If You Survive!

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Disability

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% of Monthly Salary

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Lengthy Waiting Periods - Executives

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Dependent Upon Ability to Work

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Long-Term Care

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Daily Benefit

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Hospital Stay or Home Nursing Requirement



Accumulation Products

2/23/07 –

Retirement

EMC National Life Co.

Traditional Products Not the Answer…

If you Survive!



Life

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Intended for dependents/beneficiaries

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Not available if sufferer is alive



Health

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Limited in scope/access (HMO-PPO)

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Portability at risk

EMC National Life Co.

2/23/07

Product Design

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Rider Attached To Life Insurance Policy

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Health Policy And Riders

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Treatment Of Death, By Policy Type

EMC National Life Co.

2/23/07

Critical Illness Insurance



Traditional life insurance provides financial security for your family if you die…

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…but not for you if you live.

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Now Critical Benefits Life provides both!

EMC National Life Co.

2/23/07

Version 1.0

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$50,000 Minimum Benefit

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$250,000 Maximum Benefit

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Issue Ages 18-65 (age last birthday)

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Up to Table 8

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20 Year Term Or To Age 70

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50% and 100% Accelerated Death Benefit

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Waiver of premium, accidental death, and children’s term riders are available

EMC National Life Co.

2/23/07

Covered Conditions (1.0)

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Heart Attack

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Stroke

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Invasive Cancer

EMC National Life Co.

2/23/07

Covered Conditions (1.0)

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Terminal Illness

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Non-invasive Carcinoma - 10% initial benefit

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Paralysis

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Kidney Failure

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Major Organ Transplant

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Blindness

EMC National Life Co.

2/23/07

Version 2.0

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$20,000 Minimum Benefit

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$1,000,000 Maximum Benefit

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Issue Ages 18 - 65 (ALB)

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Up To Table 8



20 Year Term Or To Age 70,

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50% and 100% Accelerated Death Benefit



Waiver Of Premium, Accidental Death, And Children’s Term Riders Are Available

EMC National Life Co.

2/23/07

Covered Conditions (2.0)

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Loss of Independent Living

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HIV for Medical Personnel

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Coronary Artery Bypass Surgery 25% Benefit

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Coronary Angioplasty - 10% Benefit

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Severe Burns

EMC National Life Co.

2/23/07

Sample Annual Premium



Male, 45, NonTobacco

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$100,000

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Term



CI 50%

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CI 100% $ 493 $ 976 $1,403

EMC National Life Co.

2/23/07

Critical Benefits Example

$100,000 Benefit 50% Acceleration Paid Benefits Non-invasive cancer $ 5,000 Then, invasive cancer $45,000 Remaining death benefit $50,000 Total $100,000 2/23/07 EMC National Life Co.

Version 3.0



$20,000 Minimum Benefit



$500,000 Maximum Benefit



Issue Ages 18 - 65 (ALB)

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Up To Table 4



10 Year Term Or To Age 70



100% Accelerated Death Benefit



Waiver Of Premium, Accidental Death, And Children’s Term Riders Are Available

EMC National Life Co.

2/23/07

Covered Conditions (3.0)

            

Advanced Stage Cancer Heart Attack Stroke Kidney Failure (End Stage Renal Disease) Major Organ Transplant Surgery Paralysis** Blindness** Severe Burns** Terminal Illness or Death Occupational HIV Infection** Early Stage Cancer (25%) Coronary Artery Bypass Surgery (25%) Coronary Angioplasty (10%) ** Benefits are excluded under the Children’s Rider

EMC National Life Co.

2/23/07

Covered Conditions (3.0)

 ALS (Amyotrophic Lateral Sclerosis or Lou Gehrig’s Disease)   Advanced Multiple Sclerosis (25%) Advanced Alzheimer’s Disease**

** Benefits are excluded under the Children’s Rider

EMC National Life Co.

2/23/07

How Product is Underwritten

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Full Underwriting

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Large Lump-sum Benefits Detailed Health And Health-History Questions

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Examinations May Be Required



Simplified Underwriting

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$100,000 Or Less

– – –

Short-Form Applications Physical Exams Not Required Accept Or Reject Basis

EMC National Life Co.

2/23/07

Additional Considerations



Morbidity vs. Mortality

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Financial Underwriting

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Individual vs. Worksite Markets

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Genetic/Family History Importance

EMC National Life Co.

2/23/07

Industry Rate Structure

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Health vs. Life Product

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Policy vs. Rider Consideration

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Level vs. Increasing Premiums

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Guaranteed vs. Indeterminate Premiums

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Reinsurance Role

EMC National Life Co.

2/23/07

Benefit Triggers

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48 Worldwide Definitions Of Critical Illness

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NAIC Model Definitions

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Definitions And Analysis Of Main Illnesses

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Partial-Payment Considerations

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Payment In Event Of Death

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Waiting And Survival Periods

EMC National Life Co.

2/23/07

State Compliance Issues

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NAIC Model

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Min Loss Ratios

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Max Guaranteed Rates

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ADL’s

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Exclude Pre-Ex Conditions

EMC National Life Co.

2/23/07

CI Benefit Taxation

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Not Clear



1099 LTC



Ask Your Tax Advisor

2/23/07 EMC National Life Co.

Potential Markets

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Disability Income Enhancement

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High Deductible Major Medical

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Lifestyle Adjustment Expenses

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Needs Analysis Solution

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Stay At Home Parents - Child Care

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Key Man Business Protection

EMC National Life Co.

2/23/07

Sources of Additional Information

•

Critical Illness Rider for Individual Insurance, Wendy Lee, FSA, MAAA Actuarial Practice Forum January 22, 2007 Volume 1 Issue 2

•

Gen Re Critical Illness Survey

EMC National Life Co.

2/23/07

Questions?

2/23/07 EMC National Life Co.