Critical Illness Insurance – Just the Facts

critical illness insurance

Critical illness such as heart attack, cancer or stroke can strike any of us at anytime.

Most of us will survive this critical event and go on to live a full life.

Critical illness insurance can pay a lump sum cash benefit at your first diagnosis of a covered illness.

These cash benefit dollars can be used to pay for anything.  A typical critical illness will take you out of the workplace for an extended period of time.  The cash proceeds from a critical illness policy can be used to pay for anything you need – your mortgage payment, health insurance deductibles and co-pays, childcare cost and even replace lost wages.  

Take a look at these stats from the American Heart Association and the American Stroke association:
  • Someone has a heart attack every 25 seconds in the United States
  • Someone has a stroke every 41 seconds
  • Someone is diagnosed with cancer every 21 seconds

We all know someone in this position.

In 2007, 62% of all personal bankruptcies that were filed in the United States were due to loss of income from a critical illness event. 

Did you know that in 2009, approximately 1.4 million U.S. citizens filed for bankruptcy?  That’s roughly one bankruptcy filed every three minutes.  Fortunately, in the late 90’s, a new insurance product, known as Critical Illness Insurance, was designed to help U.S. consumers afford the expenses often associated with a critical illness.

We also have life insurance policies that not only pays a benefit if we die but also pays a cash benefit if we experience a critical illness such as a heart attack, cancer or stroke.  This is better known as living benefits life insurance or critical illness life insurance.

Many carriers now offer this critical illness life insurance policy.  Carriers that we work with currently and have the best policies are:

Lump-Sum Cash Benefit for Critical Illness Diagnosis

This specially designed insurance provides the policyholder with a tax-free lump-sum payment in the event of receiving a diagnosis for certain critical illnesses.  Approximately 600,000 U.S. consumers have secured this form of protection, either purchased individually or through their employer.

Critical Illnesses Covered

The three main illnesses covered by critical illness insurance include stroke, cancer, and heart attack.  Additional conditions that may be covered include kidney failure, heart transplant, angioplasty, coronary bypass surgery, paralysis, and major organ transplant.

Purpose of Critical Illness Insurance 

Generally speaking, critical illnesses can cause a severe financial strain for both individuals and their families, including those with appropriate health insurance.  In the 90’s, critical illness insurance was born.  This product offers a tax-free cash benefit when needed due to a critical illness event.  

According to a national study conducted in 2009,  medical issues and critical illness played a part in over 62% of all U.S. bankruptcy cases, close to 80% of those cases had health insurance but that was not enough. 

Health insurance will not cover your household expenses and health insurance deductibles.  

Critical illnesses is affecting more and more of us in the United States each year.  In fact, according to the American Cancer Society, nearly 1.4 million U.S. Americans have been diagnosed with cancer.  Furthermore, according to the American Heart Association, 785,000 U.S. Americans will experience their first heart attack, while 600,000 will encounter their first stroke.

These are shocking statistics and again, we all know someone.  It could happen to anyone including you.

However, it’s the financial burden left after surviving a critical illness that so few households are prepared for.  The deductibles and co-payments associated with most health insurance plans can be as much as $5,000 to $25,000 or even more annually.  Medical treatment and prescriptions are very expensive.

Something that many forget to consider is that even while receiving treatment or recovering for a lengthy stretch of time, you are still required to pay your health insurance policy premiums.    The other expenses don’t stop coming either – rent or mortgage, school tuition, credit cards, food, utilities, and real estate taxes.

This is a time when your income has probably stopped because you can’t work.

One of the biggest issues facing U.S. Americans is that when it comes to a critical illness, they are most often under insured and facing large amounts of out-of-pocket expenses.  For medically bankrupt families, the average cost for out-of-pocket medical expenses was almost $20,000.  Unfortunately, most individual’s health insurance plan is contingent on their employment, so a major medical event can lead to a loss in coverage.  For those households that had private health insurance but lost it as a result of a critical illness, the average out-of-pocket expense was even greater.

Critical Illness Insurance was developed in the late 1990s to help individuals cover the medical expenses caused by a critical illness.  This highly specialized health insurance product provides policyholders with a tax-free lump-sum payment in the event of diagnosis of certain critical illnesses.  

Once offered as an employer sponsored benefit, critical illness insurance is available to most of us through individual policies.

critical illness insurance

How Much Is The Lump-Sum Payment?

The cash benefit offered through critical illness policies can be anywhere from $5,000 to $1 million. 

It’s paid once the policyholder is diagnosed with a covered critical illness in the form of a single, lump-sum payment.  While it varies among insurance companies, some critical illness policies provide multiple payments.  For example, you may receive a cash payment once diagnosed with cancer, and then receive another three years later following a heart attack.

Reasons to buy a Critical Illness Insurance policy

You can gain peace of mind knowing that you will have access to cash if you:

  • Need medical treatments not covered by current health insurance plan
  • Need to cover mortgage payments during your recovery period
  • Need to cover household expenses, such as food, insurance premiums and vehicle payments
  • Need cash for out of town travel for medical treatments
  • Need cash to coverage of experimental treatments
  • Need to replace your spouse’s income in order to care for the insured.

What does critical illness insurance cost?

The cost of a critical illness insurance policy depends on the amount of benefit you purchase.

So, how much critical illness insurance coverage should one purchase?   

If you do not have an emergency fund, you may want to consider a policy large enough to cover 2 years worth of expenses. 

  • How much is your mortgage payment?
  • How much are your monthly expenses? (auto loans, utilities, food, insurance premiums)
  • Will you loose your health insurance if you can’t go to work?
  • Do you have child related expenses?

Consider your monthly mortgage payments for 2 years.  A tremendous amount of peace of mind can be established when you are free from worrying about how you’re mortgage will get paid while undergoing treatment and recovery.

A 40-year old male non-smoker can purchase a $250,000 critical illness policy for about $130 per month.  It’s important to note that smokers will pay roughly 50% more, and the rates increase substantially after the age of 50.  Additionally, a 50-year old non-smoking male will pay around $130 per month for just $100,000 of coverage.    

Simplified Issue or Fully Underwritten Critical Illness Insurance

Most simplified Issue critical illness policies will cover you up to $50,000.  Our favorite company for simplified issue critical illness insurance is Assurity Life.  There is no medical exam needed, just an application.

It is worth getting a quote to see if this is affordable to you. 

If you are looking for larger amounts of coverage, a fully underwritten critical illness policy is available for amounts up to $1,000,000.  You will need a physical exam and this is paid for by the company that you buy the policy from.  The critical illness insurance company will want to get as much medical information as they can but your rates will likely be lower than if you go with a simplified issue policy.

Tips When Purchasing Critical Illness Insurance

As mentioned previously, a good rule of thumb is to purchase enough coverage to provide you with 2 years worth of expenses.  This could be mortgage payments, utilities, food and family maintenance.   Just take your monthly expenses and multiply then my 24 months.

The cost of coverage varies from one insurance company to another.  It’s wise to consult a reputable and knowledgeable insurance professional that has access to wide variety of insurance providers.  This way you can find the best coverage at the most reasonable rate.


While the need for critical illness insurance might be minimal with the Affordable Care Act (ACA) in place, it’s still worth considering.  Even though there is a maximum out-of-pocket set by the ACA, higher costs can still be incurred, especially when visiting a provider out of the network of the plan.  


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Ogletree Financial Services can be reached at 1-800-712-8519