Critical Illness Insurance—Let the Buyer Beware

I am constantly getting calls from AFLAC representatives that want us to offer their critical illness coverage to our staff. Usually, they try to bribe their way in the door with one of those silly ducks—that's a great marketing approach if your target audience is three years old or a canine. (I hear dogs love the stuffed ducks.) Recently, a rep tried a different approach. She tried to guilt me into offering ASHA employees the opportunity to choose. Choice is a fundamental American value. Why was I denying ASHA staff the right to choose for themselves?

It's true, ASHA staff value the opportunity to choose, but they want to choose between good options. They trust me to vet what we put in front of them and I'm not going to let someone sell my colleagues swamp land. 

I did a little research online and talked to a source who shall remain nameless. The average annual AFLAC premium is $780/year. The seller makes 47% commission in the first year or over $366. Stock bonuses can be earned on top of that. In other words, half of what you're paying goes in the sales reps' pocket.


No wonder the sales reps are so persistent. You'd think they'd be trying to get their foot in the door with a nice bottle of wine though. They can afford it. 

In general, I'm not a fan of critical illness insurance because the policies pay out only if you get sick or injured the "right way." Some policies only cover a cancer diagnosis for example. If you have a heart attack, you're out of luck. (In more ways than one.) However, I am a big believer in protecting your income with disability insurance. I wrote about our recent efforts in that regard in this post. But, don't just take my word for it. 

• Critical Illness Insurance Might Not Be Worth It. More employers are offering this insurance as a benefit, but consumer advocates question its value. Consumer Reports, September 27, 2016
• Insurance for Critical Illness May Add Security, but at a Cost, The New York Times, March 18 2016

The coverage is surprisingly common. SHRM reported that 9 out of 10 critical illness policies are sold through the workplace. 45 percent of employers with more than 500 employees offer the coverage. Critical illness coverage has expanded as high deductible health plans have become more popular. These plans are marketed as a way to protect yourself against the deductible. I just don't think they are the best tool. I believe your money is better spent purchasing disability coverage and funding a health savings account. 

There are less expensive policies than the Aflac example I shared; and I'm sure there are some employers that are carefully vetting the options. However, I've also heard that there are employers that do offer the coverage don't handle it properly. If an employer allows the coverage to be paid for pre tax, it's an ERISA plan and you have to offer COBRA, File 5500, Report it on W2s, etc...

Because I have the utmost respect for Carol Harnett and think it's always worth considering another point of view, especially a well informed one, take a moment to read Survival Entails a Price. 

I like this quote from an article in the Economist on choice.

As options multiply, there may be a point at which the effort required to obtain enough information to be able to distinguish sensibly between alternatives outweighs the benefit to the consumer of the extra choice. “At this point”, writes Barry Schwartz in “The Paradox of Choice”, “choice no longer liberates, but debilitates. It might even be said to tyrannise.” In other words, as Mr Schwartz puts it, “the fact that some choice is good doesn't necessarily mean that more choice is better.”