While most people understand the need for medical and dental insurance, the value of voluntary benefits is less understood. That’s why advisers should be selling them as “financial protection,” said Rob Shestack, senior vice president at AmWINS Group Benefits, at the Workplace Benefits Renaissance in February.

“Life insurance is there to protect your estate and your assets and maybe pay for college or pay off a house,” he said. “Disability insurance protects your paycheck.”

One of the most overlooked benefits, Shestack said, is critical illness. “People think it’s a health benefit. I get cancer and I get a benefit.”

While that’s true, critical illness is also a financially related problem, he added. According to a recent Harvard study, 86% of individuals that filed for bankruptcy did so because of out-of-pocket medical-related costs — and 70% of those people had major medical insurance, Shestack told attendees. The average bankruptcy filed was around $13,000.

“That may not seem like a lot of money, but one critical illness policy for $4 a week could certainly cover $15,000 and protect you and your family,” Shestack said.

Critical illness insurance can be structured in several ways, but is most typically paid out as a lump-sum payment if the policyholder is diagnosed with one of a list of critical illnesses named in the policy. The lump-sum payment can be used to pay for the costs of treatment, replace lost income, help pay the mortgage or even fund a change in lifestyle caused by the illness.

Life insurance is the No. 1 voluntary benefit sold in the workplace, with disability coming in second, he added.

Market adjustments

Policy distribution has changed over the years, Shestack said, with life insurance dropping and critical illness insurance and accident insurance being offered more often because of gaps in health care coverage, but also “because we’re starting to sell them as a financial protection.”

Carriers, Shestack said, are also becoming more innovative and creative with how they offer voluntary benefits. For example, offering disability payouts to union employees during a period of layoff or building long-term care benefits into life insurance.

In 2015 voluntary benefits will be about a $7 billion industry — new business premium, not enforced premium, he added. That’s up from about a $2 billion industry in 1997.

Most employers offer about three to five products. “They don’t want to confuse the employee and offer too many products in one particular year. They’ll layer it over the years — offering one or two products the first year, three or four the next, and so on,” Shestack said.

Those with more than 5,000 employees offer one or more voluntary benefits and at least 60-70% of middle-market groups are offering voluntary benefits, he added.

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