If you’re one of the fortunate ones, you’ve never considered whether you should purchase critical illness insurance.
Quite possibly, you may not even know what it is.
Most policyholders believe they’re fully covered with their standard health insurance policy, however, the outrageous costs of treating critical illnesses are most often well beyond what their plan covers.
This article helps to explain what critical illness insurance is and whether it’s a plan you may want to consider for your family.
What is Critical Illness Insurance?
While the average U.S. life expectancy rate continues to rise, insurance companies are devising ways to ensure that Americans can have the financial means to get older. Created in 1996, critical illness insurance was developed to alleviate the substantial medical bills left after surviving a stroke or heart attack.
The following list includes the medical emergencies covered by critical illness insurance:
- Heart Attack
- Coronary Bypass
- Organ Transplants
Due to the fact that these medical conditions require extensive care and treatment, the costs for these conditions can eat through someone’s medical insurance rather quickly. A family might have a difficult time paying out-of-pocket medical expenses if there is not a health savings account (HSA) or emergency fund in place.
Many consumers choose high-deductible health insurance plans for their affordable monthly premiums. However, if a serious illness or medical condition occurred, they would end up in a real bind.
Critical illness insurance pays the medical costs not covered by a traditional health care plan. Generally speaking, the insured would receive a lump-sum payment in order to cover such non-medical costs like child care or transportation. Coverage amounts do vary and depending on the policy you choose, you may be eligible for up to $100,000 in coverage. Factors that impact the price of your critical illness insurance policy include the amount of coverage needed, the time that coverage is needed, age, sex, the insured’s overall health, and any relevant family medical history.
It’s important to note that there are exceptions with critical illness insurance. For example, some cancers are not covered, as well as some chronic illnesses. Additionally, you may not receive a lump-sum payment for a relapse in a medical condition, such as a repeat heart attack or stroke. Depending on the policy, coverage may end at a specified age. Be sure to read the entire policy carefully.
Why is Critical Illness Insurance Important?
This policy can either be purchased by the individual or through the employer as a voluntary benefit. Adding critical illness insurance as a rider to an existing life insurance policy is another way to save money on coverage.
Insurance companies are enthusiastic to offer these plans because they are aware that employees, especially, are concerned with the high out-of-pocket expenses associated with a higher deductible plan. However, unlike other health care plans, the employees are typically responsible for the entire cost of the critical illness insurance plan.
As mentioned, the lump-sum payment from a critical illness insurance policy can be used for many different expenses associated with illness, such as:
- Treatments not covered under the standard policy
- Medical services
- Daily living expenses
- A place to heal and rest for terminally ill policyholders like a vacation
- Transportation expenses, vehicle accommodations, installation of lifts in the home
Low Cost with Limited Coverage
What makes these policies attractive is that they are quite affordable, even more so when purchasing through an employer. However, regardless of the low cost of these plans, some health care professionals are concerned with the coverage these plans provide. A typical underlying concern surrounding critical illness insurance policies is that reimbursement is only made on covered illnesses. In other words, if you’re diagnosed with a certain medical condition that’s not listed as a covered illness, you’re in trouble.
The more illnesses that your plan covers you for, the higher the premiums will be. For example, a 40-year old woman with a cancer-only individual plan will most likely pay $40/month for $25,000 in coverage. However, if she were to expand her coverage to include organ transplants, coronary illnesses, and other specified medical conditions, she would pay double that amount.
Just as with other insurance policies, critical illness insurance policies are not without their stipulations. For instance, not only must the diagnosed illness be listed in the policy as a covered illness, but certain circumstances must take place as well for the illness to be covered. A cancer diagnosis is not necessarily enough to cause payment from the policy if the cancer is considered not lethal or hasn’t spread past the initial area. Stroke may not be covered unless neurological damage lasting longer than 30 days occurs.
Seniors need to be especially careful when considering these policies. Limitations on the payout for persons over 75 are possible, or an age-reduction schedule might be used. Another important thing to keep in mind is that some of the critical illness policies do not guarantee payment.
Alternative Forms of Critical Illness Insurance
There are different forms of insurance coverage that do not include the above-mentioned restrictions. One example includes disability insurance, which provides you with an income in the event that you are unable to work due to an illness, plus the coverage isn’t defined by a short list of illnesses. This option is perfect for those that are head of their household, and cannot afford to experience a prolonged absence from work.
Choosing a high-deductible policy while making contributions to either a flexible spending account (FSA) or health savings account (HSA) is another way to provide coverage for future illnesses. Both accounts offer tax benefits if used for qualified medical expenses. Lastly, you also have the option to grow a separate savings account to cover any expenses that come after receiving a critical illness diagnosis.
Critical illness insurance can ease some of the financial worries in case you are unable to work due to illness. These plans offer the flexibility of using the benefit towards needs that arise out of a major illness. Uncovered medical expenses are a common reason for bankruptcy in the U.S., so acquiring the proper protection for yourself and your family certainly needs to be considered, and especially if your family history includes any of the conditions mentioned above.
There are some drawbacks and stipulations to this type of insurance coverage, though. As with all types of insurance, you should shop around to find the policy that best meets your needs and situation.
Frequently Asked Questions
What is covered by critical illness insurance?
The following list includes some medical emergencies covered by critical illness insurance:
How would a critical illness insurance benefit be paid?
Critical illness insurance pays the medical costs not covered by a traditional health care plan. Generally speaking, the insured would receive a lump-sum payment in order to cover such non-medical costs like:
– Treatments not covered under the standard policy
– Medical services
– Daily living expenses
– A place to heal and rest for terminally ill policyholders like a vacation
– Transportation expenses, vehicle accommodations, installation of lifts in the home
Where can I purchase critical illness insurance?
Critical Illness insurance can either be purchased by the individual or through the employer as a voluntary benefit. It can also be added as a rider to an existing life insurance policy as possibly another way to save money on coverage.