Critical Illness Insurance Costs And Benefits – Forbes Advisor


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Traditional health insurance policies cover a variety of treatments and services, including surgeries, prescription medications and diagnostic testing. However, paying for critical illness care often goes well beyond those costs.

To fill gaps in your coverage, supplemental health insurance plans, such as critical illness insurance, are available. Critical illness insurance can be beneficial if you want an insurance payment above and beyond what a standard medical insurance policy pays.

What Is Critical Illness Insurance?

Critical illness insurance is a form of supplemental health insurance that provides coverage for expenses that your health plan doesn’t cover. The purpose of critical illness insurance is to provide a monetary safety net in the event of a medical diagnosis that could result in expensive treatments or other financial hardships.

Critical illness insurance payments are typically a lump sum, such as $25,000 or $50,000, when you’re diagnosed with a critical illness covered by the policy. You can use the money to help pay for your care, but you can also use it for other reasons, including paying your mortgage.

You can generally get critical illness insurance through an employee benefits program at work or by buying an individual policy on your own.

What Does Critical Illness Insurance Cover?

Critical illness insurance provides benefits if you get diagnosed with a qualifying medical condition. The illnesses covered by a policy vary depending on your plan.

Here are some of the critical illnesses that are usually covered under this type of insurance:

  • Cancer, though it might get limited to a life-threatening diagnosis
  • End-stage renal failure
  • Heart attack
  • Major organ transplant
  • Multiple sclerosis
  • Parkinson’s disease
  • Stroke

Make sure to dig into the coverage for a policy. Critical illness insurance policies can vary. For instance, some plans cover Amyotrophic Lateral Sclerosis (ALS or Lou Gehrig’s Disease) and hearing loss, while other policies don’t cover those health issues.

Does critical illness insurance cover pre-existing conditions?

Most critical illness plans don’t cover pre-existing conditions that were diagnosed before the policy was purchased.

For example, your critical illness plan may not provide benefits if you were diagnosed with coronary artery disease before getting critical illness insurance and later needed bypass surgery.

What Does Critical Illness Insurance Not Cover?

What critical illness insurance policies cover varies by the policy. But generally, here are what a critical illness insurance policy won’t cover:

  • Asthma
  • Diabetes
  • Injuries sustained in an illegal act
  • Injuries sustained by substance abuse
  • Injuries sustained in war
  • Pre-existing conditions, though a critical illness insurance policy may cover the condition after a time, such after a year of the policy being in effect
  • Self-inflicted injuries

Make sure to read the fine print and understand exactly what the specific critical illness insurance policy covers before buying coverage.

How Does Critical Illness Insurance Work?

Supplemental critical illness insurance works much differently than a traditional health insurance policy, like a PPO or HMO.

Your regular health insurance plan covers the costs of your health care. If you’re diagnosed with a critical illness, you can also file a claim with your critical illness insurance company. Your critical illness insurance company provides a lump sum payout up to your policy’s coverage limit.

Critical illness insurance can help offset health care costs or you can use it for whatever reason you need. You could use the money to pay your health insurance deductible or copayments, or you could even put the money toward mortgage payments, groceries or childcare.

Who Needs Critical Illness Insurance?

Critical illness insurance can be a good investment for people who can get coverage for free or at a low price from an employer, or those with a health plan with a high deductible and out-of-pocket costs. Or if you have a family history of certain health conditions, like cancer or heart disease, critical illness insurance can provide financial peace of mind that you will get more financial help if you’re diagnosed with the condition.

Because critical illness insurance offers coverage for a wide range of conditions, it can also be beneficial for people who don’t have an emergency fund or are concerned about the financial consequences of an unexpected medical diagnosis.

How Much Does Critical Illness Insurance Cost?

Here’s a look at examples of critical illness insurance quotes from insurance companies. These costs are for group coverage, not individual coverage sold directly to individuals, so keep that in mind when comparing quotes.

Critical illness insurance costs increase as you age

Critical illness insurance costs more for smokers

If you buy an individual policy on your own, the cost of critical illness insurance depends on a few factors, based on the amount of risk you pose to the insurance company. In most cases, you can expect to pay lower rates for an individual critical illness insurance if you are young and healthy, with no pre-existing conditions.

Your premium is largely dependent on the coverage amount. Here are some additional criteria that insurance companies consider if you apply for an individual critical illness insurance plan:

  • Overall health
  • Age
  • Gender
  • Nicotine use
  • Location

Advantages of Critical Illness Insurance

Provides financial protection

A critical illness insurance plan can offer financial protection for your family. This type of insurance can also keep you financially stable while you pay for treatment.

Benefits can be used for anything

The payout from a critical illness insurance plan goes directly to you and can be used for any purpose, not just medical costs. If you need to pay for childcare or catch up on mortgage payments, for example, the proceeds can cover those expenses.

Affordable premiums

Most critical illness insurance plans are relatively affordable, especially compared to the cost of health insurance. Purchasing a plan can supplement your existing health insurance without raising your overall monthly health insurance premium significantly.

Drawbacks of Critical Illness Insurance

Low coverage limits

Critical illness insurance plans generally offer low benefits. For example, many companies provide maximum coverage limits of $50,000. Depending on your financial situation and the cost of treatment, this may not cover 100% of your expenses.

Doesn’t cover pre-existing conditions

If you have pre-existing health conditions, your critical illness insurance policy probably won’t cover them. Many plans also exclude coverage for new critical conditions that resulted from previous diagnoses.

Premiums increase with age

The cost of critical illness insurance usually increases as you get older. You can secure an affordable rate while you are young and healthy, but your premium will likely get more expensive with age, especially if you develop certain health conditions.

Alternatives to Critical Illness Insurance

If you’re not sure that critical illness insurance is right for you, alternatives can provide financial protection after a medical diagnosis.

Here are some other supplemental insurance policies you might consider:

  • Disability insurance: If you become disabled and can’t work, disability insurance provides income replacement during that period. Insurers may sell short-term disability insurance and long-term disability insurance, which offer benefits for varying lengths of time.
  • Hospital indemnity insurance: Hospital indemnity insurance provides monetary benefits if you’re hospitalized beyond your health insurance plan. Depending on the policy, hospital indemnity insurance may provide a fixed benefit for an entire hospital stay or it might provide coverage for each day you stay in the hospital.
  • Accident insurance: Accident insurance provides a lump sum payout if you sustain injuries in an accident, such as a broken bone or severe burn. The money can be used for medical or non-medical expenses.
  • Flexible Spending Account (FSA): A flexible spending account is essentially a savings account that can be used to cover out-of-pocket healthcare expenses, including copayments and coinsurance. FSAs are also beneficial because you don’t pay taxes on the contributions. One drawback with an FSA is that you generally can’t carry over funds to the next year unless the employer allows it.
  • Health savings account (HSA): An HSA is another way to save money to pay for future health care costs, but those savings accounts are connected only to high-deductible health plans (HDHPs). Unlike FSAs, an HSA also lets you carry funds over into the next year and you can take it with you when you change jobs.

Critical Illness Insurance FAQ

Which companies sell critical illness insurance?

You can typically buy supplemental insurance from health insurance companies, as well as life insurance companies. Here are a some insurers that offer critical illness insurance plans:

  • Aflac
  • Assurity
  • Breeze
  • Guardian Life
  • UnitedHealthcare

Is critical illness insurance worth it?

Like other supplemental insurance types, critical illness insurance is worth it if you end up making a claim on it. If you can buy critical illness through work at a very low cost, it could also be worth it.

If you have a health insurance plan with high out-of-pocket costs or don’t have sufficient savings to pay for unexpected medical bills, critical illness insurance can provide peace of mind.

But if your medical insurance plan offers robust coverage, you have disability insurance, you’re financially stable and you have solid life insurance in place, a critical illness diagnosis may not be financially devastating.

Do you still need health insurance if you have critical illness insurance?

You still need regular medical insurance if you buy critical illness insurance. If you are diagnosed with an illness, your health insurance plan pays for the treatment itself, including surgeries, prescription medications and rehabilitation costs. A critical illness insurance policy helps with expenses that go beyond your health insurance plan.




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