Hospital Indemnity products have grown in popularity within the ancillary market, especially for seniors. Features of senior-focused Hospital Indemnity products often cited as especially appealing or valuable (by Telos Actuarial) include:
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Simplified Underwriting
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Competitive Commissions
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Guaranteed Issue availability
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ER and/or Urgent Care benefit
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Observation Stay benefit
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Per-admission and daily hospitalization benefit
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Cancer/Heart Attack/Stroke benefit option
A review of several current top-selling HI products shows that most of these features are not out of the ordinary. This blog will look more closely at the first two on the list.
Simplified Issue Underwriting
HI product applications typically ask if a number of specific conditions are currently present or were recently present, and a “yes” answer for any one of those conditions may disqualify an applicant from coverage. It is a simple approach – there are no lab tests or blood draws, and the applicant will generally know right away whether they are approved for the coverage.
Carriers typically ask about 20-40 conditions, though the “lookback period,” how far back in time an applicant is asked to consider whether each condition was present, varies by condition and carrier. Filed applications show that these conditions, in addition to others, are present on all HI applications:
- AIDS, ARC or HIV
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Alzheimer’s or dementia
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Chronic kidney disease or ESRD
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Congestive heart failure
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Heart attack
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Hospitalization
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Internal cancer
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Malignant melanoma
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Receiving home health care
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Stroke
Commissions
Typically, commission rates for individual products are “heaped,” with higher percentages paid in the early years the policy is in force and smaller percentages paid later. This pattern is aligned with the amount of time and effort an agent puts into selling the product; it requires more up-front investment to explain the reasons the product is valuable, how the application process works, the benefits available, limitations, etc. After the initial sale there still may be questions to answer or issues to resolve, but those are generally less frequent.
The commission percentages filed for senior-focused HI products (shown in the chart below) follow this pattern – a high proportion of premium is paid as commission in the first year, generally 70% – 75%, though there are some outliers. Commission rates in later years drop off significantly, though they are not zero. It should be noted that these are the initially filed rates, and carriers may tweak these over time or encourage sales through bonuses or other incentives.