Health Insurance

What Is Critical Illness Insurance, and What Does It Cover?

Suffering a medical event like a heart attack, or being diagnosed with a terminal illness like cancer, can wreak financial havoc on a family. Critical illness insurance can help you pay for medical expenses you were unprepared for.

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Health insurance is essential insurance coverage that many Americans pay for to help cover medical costs associated with an illness or accident, but it may not always cover everything. Critical illness is a supplement to health insurance to help with that, and is a fixed amount lump sum payment if you are diagnosed with a specified illness. 

Many people may suffer from a sudden illness like a heart attack or cancer diagnosis. A critical illness insurance policy will provide a payment to help get you through the initial shock of the diagnosis or medical event, which can come in handy during this time of need. 

What Is Critical Illness Insurance?

Critical illness insurance is designed to help fill in the gaps that are left between a high deductible and the cost of medical care that many cannot prepare for. Certain illnesses or medical events like a heart attack, stroke, or terminal illness like cancer are included in the policy. 

Many people suffer from a severe financial situation, sometimes even losing their assets to pay their medical bills. Critical illness provides a benefit to be paid out in a lump sum to the policyholder allowing them to start paying medical bills, or their deductible, immediately upon diagnosis of one of those covered illnesses. 

How Does Critical Illness Insurance Work?

In the event of a critical illness, traditional insurance may not be able to cover all costs, so this supplemental coverage is beneficial. The benefit can also cover non-medical expenses such as transportation, child care, etc. A fixed amount, determined when you bind your policy, is typically paid to you to cover those costs.

Depending on your policy, the amount paid to you could be small, like $5,000, or higher, like $50,000. Determining a coverage amount should be based on your health insurance deductible and possible future financial obligations. Numerous factors influence the price of a policy, such as coverage amounts, sex, age, and medical history.

As an example, let’s say you purchase a critical illness insurance policy with a limit of $100,000. As the policyholder, you suffer a heart attack. Upon diagnosis of this event, the critical illness insurance policy will pay a benefit of $100,000. The money will be yours to use on medical bills, your health insurance deductible, or any other costs related to the event. If you need to pay someone to watch your child that you usually have at home, it can even be used for this. 

What Does Critical Illness Insurance Cover?

There are specific medical illnesses or events that critical illness insurance covers, and while each policy will be different, these common illnesses are:

  • Heart attack
  • Organ transplant
  • Angioplasty
  • Bypass surgery
  • Coma
  • Alzheimer’s
  • Stroke
  • Cancer
  • Kidney failure
  • Paralysis

As with any insurance policy, there are some exclusions to be aware of, as some chronic illnesses may be excluded, as well as certain types of cancer. In the event of a second stroke or heart attack, you may not be eligible to receive a payout, as well as if an illness returns. Age can affect some coverages or even end the policy as a whole. 

Always read over your policy and check with your insurance agent to understand all policy inclusions and exclusions.

How Much Does Critical Illness Insurance Cost? 

Usually, critical illness insurance policies are not expensive, especially when they are offered by employers, which is becoming a prevalent benefit to offer. The cost of some smaller benefit plans could be as low as $25 a month, which is a bargain compared to typical, low-deductible health insurance policies. Even the more extensive benefit policies are affordable when considering your return on investment if you need to use the policy.

In 2021, 1.9 million Americans were diagnosed with cancer. This is up almost 100,000 since 2018. Many of those diagnosed probably suffered from financial hardship afterward if they did not have critical illness insurance. 

A heart attack can be a short medical event with long-lasting financial consequences. The hospital stay alone can be over $30,000, not including medication and treatment. If you suffer a heart attack, you could end up on lifelong medication that could be unaffordable due to being uninsured or having a high deductible. 

Advantages of Critical Illness Insurance

If you are diagnosed with a critical illness covered by your insurance policy, you will receive a lump sum payment to use on expenses related to the illness. During recovery, the payout can be used to pay for nonmedical expenses, such as mortgage payments, transportation, and equipment. Critical illness insurance costs are much more affordable than a standard health insurance policy, even with a deductible. 

This is not to say you should have critical illness insurance in place of a traditional health insurance policy, but in addition to. The more coverage you have at the time of an illness diagnosis or medical event, the better off you will be financially. If you don’t have to stress about the financial burden medical care can cause, you will likely recover quicker.

Disadvantages of Critical Illness Insurance

Chronic illnesses are frequently excluded, and some types of cancer may not be covered. In the event of a recurrence of a critical illness, such as a second stroke or heart attack, a payout may not be offered. When the insured reaches a certain age, coverage may end or be reduced. Some critical illness policies have narrow restrictions regarding what conditions are covered, so it’s essential to check the specific conditions.

If your policy covers a whole host of illnesses, you will pay more premiums, unlike traditional health insurance, which usually covers many medical-related issues for the same premium. While critical illness is low cost, it can have some unwanted exclusions. 

Who Should Consider Critical Illness Insurance?

Bankruptcy in the United States is mainly caused by medical bills and the inability to pay them. Because of this possible financial stress, this type of policy may be worth researching, especially if you have a family history of any potentially covered illnesses. When you become sick and are unable to work, critical illness insurance can relieve some of your financial worries. A wide range of potential needs can be covered with the money paid out.

Regardless of age and health, many people can benefit from critical illness insurance; just be sure to read all the exclusions. Senior citizens should especially pay attention to any age limitations. 

Alternatives to Critical Illness Insurance

As with most insurance policies, there are some alternatives you can consider if this is not the route you want to take. If you choose not to take a critical illness insurance policy, consider the following options:

  • Savings – Having a savings emergency account can help alleviate some burdens associated with medical bills. Even having enough to cover your health insurance policy deductible can help.
  • HSA/FSA – Many high deductible insurance policies have the option to do a Health Savings Account (HSA) or Flexible Spending Account (FSA), which helps to offset the medical costs not covered by the insurance plan. 
  • Disability – disability insurance can provide benefits if you cannot work due to an illness. 

How To Purchase Critical Illness Insurance

If you decide to purchase a critical illness insurance policy, it is pretty straightforward. You can check with your employer to see if they offer it as an add-on benefit to your other employer-sponsored plans. 

If your employer does not offer the option to buy a critical illness insurance policy, an insurance agent who also sells health and life insurance can help you. And, of course, there are many online health insurance options that you can research.