What is Critical Illness Insurance and is it Worth it?

Sarah Sullivan
August 15th, 2019 August 15th, 2019 |
Read time: 10 minutes

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Get additional lump sum cash benefits to supplement your major medical policy for qualifying illnesses.

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Critical illness policies are typically represented as a way to provide an additional layer of financial protection as major medical policy deductibles steadily increase each year – a trend that may make it increasingly difficult for people to access their major medical benefits.

Did you know…
In 1998, the average individual annual deductible for an employee at a large company was only $229!1 By comparison, 20 years later, in 2018, the average individual deductible had risen to $1,573.2

In fact, a recent Commonwealth Fund survey (Feb. 2019) concluded that while there are fewer uninsured Americans eight years into the Affordable Care Act (ACA), more people are underinsured today than in 2010.3

The greatest increase in people with inadequate coverage has occurred among those with employer health plans.4

  • 45% of adults (aged 19-64) are inadequately insured.5
  • 30% of adults (aged 19-64) who had major medical policies throughout the year had trouble paying or were unable to pay medical bills.6

It may not come as a surprise then that critical illness plans are most commonly available as supplemental insurance in an employer’s benefits package. Sometimes it’s one of multiple supplemental policies on offer, alongside life and disability insurance.

These supplemental insurance options are meant to make employees feel more comfortable with their high deductible major medical policy and less anxious about the higher out-of-pocket costs being passed on to them.7

However, critical illness plans are also increasingly being sold in the individual market.8

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What is Critical Illness Insurance + How Does it Work?

Critical illness insurance typically provides a fixed benefit (lump sum) if you’re diagnosed with a covered critical illness such as cancer, heart attack, stroke or renal failure.9 Some additional rules apply in order to qualify to get the benefit, which we’ll discuss more later in this article.

You can use the lump sum benefit however you want, whether to pay for your major medical deductible, medical costs not covered by your medical insurance, or to make your mortgage payments or pay other bills while you’re undergoing treatment and recovery.

You may be able to select an indemnity plan for your critical illness coverage, which pays a benefit based on the treatment received.10 Again, you can use the benefit however you wish.

Critical illness policies typically payout one time and then are exhausted, meaning once you’ve received your policy’s benefit, the policy is no longer in effect.

Compare critical illness plans and costs available to you by requesting a quote – it just takes a couple of minutes.

Get a Critical Illness Insurance Quote

What Does Critical Illness Insurance Cover?

Many critical illness policies cover between 30 and 36 critical conditions.11 The most commonly covered conditions are:

  • Cancer
  • Heart attack
  • Stroke

Other conditions may include:

  • Heart transplant
  • Coronary bypass surgery
  • Angioplasty
  • Kidney (renal) failure
  • Other organ transplants

Of course, you need to review any policies you’re considering very closely to understand which conditions are covered and what rules apply in order for you to be able to collect the benefit (more on that below).

How Much Does Critical Illness Insurance Cost?

You can obtain a policy with anywhere from a $5,000 up to $500,000 in benefit amount.12

The higher benefit policies (over $70,000) generally utilize full medical underwriting and have higher monthly premiums associated with them.13 So they may be harder to qualify for.

The lower benefit policies (under $70,000) have lower monthly premiums and may only require a “simplified issue” qualification process, in which if you can answer “no” to a few medical questions you’re able to qualify and enroll.14

According to a New York Times (NYT) article from 2016, on average, a non-smoking 42-year old seeking a $50,000 benefit may pay $54 to $66 a month.15

It’s important to note that your premium will likely increase as you age. For example, the monthly premium for $50,000 benefit for a 60-year old could cost $210 a month.16

The following factors determine a critical illness policy’s monthly premium amount:17

  • The benefit amount you select
  • Your age (policies may cancel at age 70)
  • Your general health, including whether or not you smoke
  • If the policy is stand-alone or as an endorsement to an existing policy

Compare critical illness plans and costs available to you by requesting a quote – it just takes a couple of minutes.

Get a Critical Illness Insurance Quote

What to Know Before Enrolling in a Critical Illness Plan

The following sections describe common policy limitations and practices of the insurance carriers offering critical illness plans.

It’s important to ask questions of the insurance carrier or your agent so that you fully understand the coverage you’re purchasing since these details may impact your ability to actually qualify for the benefit if you get sick.

Specific Guidelines for Qualifying Illnesses Must be Met

In addition to being limited to the specific conditions named in the policy, critical illness policies have very specific guidelines and definitions for those qualifying illnesses.

Just because “cancer” is included in a list of covered conditions on your policy doesn’t mean you’ll be able to use your critical illness insurance if you get a cancer diagnosis.

Why?

Illnesses must meet the specific definition and rules set forth in the policy.

As an overly simplified example, if your policy specifies that a cancer diagnosis is only covered if it’s stage 3 or higher, then if you’re diagnosed with stage 2 cancer, your policy won’t cover it, or may only do so at a percentage of the full benefit.18

And with medical terminology like “infarction” and “subarachnoid hemorrhage” written right into these guidelines, it can be difficult to know what’s really covered unless you do additional research.

Your Benefit May Not Pay If You Die

If you die shortly after your diagnosis your family may not receive benefits. Some policies have rules specifying that you must survive for a certain period of time after a diagnosis or heart attack in order to receive your benefits.19

This is one reason why some experts recommend you purchase a life insurance policy alongside any supplemental medical insurance coverage.20

Pre-existing Conditions May Disqualify You

Since these are not ACA-qualifying plans, pre-existing conditions or family health history may disqualify you, or you may be subject to policy exclusions or conditions.21

For example, if you previously had cancer, your critical illness policy may cover you in the event of a heart attack or stroke, but explicitly require a 12-month waiting period before cancer coverage becomes available to you.22

Chronic Illnesses Are Not Covered

Do not confuse critical illnesses with chronic illnesses. Critical illness policies do not cover chronic illnesses like diabetes, arthritis or high blood pressure.

And according to the data, you’re more likely to develop a chronic disease than experience a critical illness:

  • Of 1,000 50-year olds, approximately 12 to 15 of them (1.2% to 1.5%) might experience one of five conditions commonly covered by critical illness policies (cancer, heart attack, stroke, renal failure, or major organ transplant), with 90% of critical illness claims tied to cancer, heart attack and stroke.23
  • According to a Kaiser Family Foundation (KFF) poll from 2018, 60% of respondents indicated that they or someone in their immediate family have a chronic condition that requires ongoing medical treatment.24

Weigh your risks of developing a chronic or critical illness and make sure that the health insurance you purchase provides the right kind of coverage.

Premium Amount Increases as You Age

Your age in relation to critical illness policy costs were discussed above, but it’s worth reiterating here as an important factor to consider before enrolling in a policy.

Critical illness policy premiums get more expensive as you age, and/or your benefit amount may be reduced.25 And once you hit a certain age, for example, 70 years old, the policy may cancel entirely.

According to one insurance expert, very few critical illness policies are sold to individuals older than their mid-50s since the cost of coverage can become prohibitive.26

Of course, since you’re more likely to develop a critical condition like cancer later in life, this means that your premiums may become unaffordable or you may even age out of your coverage before you really need it.

Still interested in exploring your critical illness insurance options? Get a quote to compare critical illness plans and costs available in your area.

Get a Critical Illness Insurance Quote

Is Critical Illness Insurance Worth it?

If you have major medical insurance, do you really need this supplemental insurance? Only you know what your major medical out-of-pocket costs are, and can decide if critical illness coverage is worth the additional monthly premium cost.

Even though all insurance is a balance between the risk of needing to use the coverage and the cost of carrying it – the very limited nature of critical illness policies reduces the likelihood that you’ll actually use the benefit.

Disability and life insurance may be good alternatives to critical illness insurance for providing additional financial protection, especially if you have access to discounted group rates through your employer.27

And if you have a qualifying high deductible health plan, a health savings account (HSA) is an alternative to carrying more coverage. If your employer offers an HSA plan and contributes to it this can be a good way to acquire funds that you know will be available to you to help with high out-of-pocket costs.

Who is Critical Illness Insurance Good For? Do You Need it?

It can be relatively easy to qualify for the lower-benefit (under $70,000) simplified issue policies as they typically don’t require full medical underwriting.

If you have a history of cancer or heart disease in your family and the monthly premium is affordable, it may be worthwhile to explore these types of policies.

That said, beware of accidentally overestimating your risk of experiencing a critical illness. Most of us are more likely to experience a non-critical (but still costly) health condition which would not be covered by a critical illness policy.28

Still think a critical illness insurance plan might be right for you? Get a quote (it just takes a minute) to view plan costs and options.

Get a Critical Illness Insurance Quote

Where Can You Buy an Individual Critical Illness Policy?

Critical illness insurance plans are often available as part of an employer’s benefits package.

Stand-alone individual critical illness plans can also be purchased from the private marketplace.

And other types of non-ACA supplemental insurance (also available in the private marketplace) often include critical illness as an option that you can add on to your coverage for additional premium: gap medical insurance and hospital indemnity insurance are two such examples.

You can get a quote for a critical illness policy from the Health eDeals insurance marketplace. It just takes a minute to see plans and costs.

Get a Critical Illness Insurance Quote

What Other Types of Supplemental Insurance Are Available?

Critical illness insurance is just one of several supplemental forms of health insurance meant to work alongside your major medical policy to provide additional coverage.

Accident Insurance
Accident insurance may be able to provide additional benefits for covered injuries resulting from an accident. The kinds of injuries that may be covered include: broken bones, severe burns, sprains, dislocations and fractures, concussions and ruptured discs.

Get an Accident Insurance Quote

 

Medical Gap Insurance
Gap health insurance can include critical illness and accident coverage that provides a fixed, lump-sum benefit which can be used any way you want to, whether to pay down your major medical deductible or for household expenses.

Get a Medical Gap Insurance Quote

 

Hospital Insurance
Hospital indemnity insurance provides benefits for medical services associated with being hospitalized. Covered medical services include things like hospital room and board, inpatient physician’s visits and inpatient surgery.

Get a Hospital Indemnity Insurance Quote

 

Vision Insurance
Most major medical policies don’t cover vision. A vision plan can help reduce your costs for routine preventive eye care and prescription lenses.

 

Dental Insurance
Most major medical policies do not include coverage for your teeth and gums if you’re over 17 years old. Dental insurance premiums and deductibles are affordable and policies tend to be straightforward, covering services like cleanings and checkups, fillings and extractions.

Get a Dental Insurance Quote

Summary + Next Steps

We covered the basics of critical illness insurance, including:

  • What it is and how it works
  • What it covers
  • How much it costs
  • Who it’s for
  • What to know before enrolling

We also discussed other types of supplemental health insurance that can help with high deductible health plans, or to fulfill other healthcare needs that your major medical policy doesn’t cover like dental and vision.

If you think a critical illness insurance plan may be right for you, get a quote to view policy options and costs.

If you’d like to discuss your options with a licensed agent, call 888-855-6837 to speak with someone today.

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Originally Published On August 15th, 2019
Independence American Insurance Company and/or Madison National Life Insurance Company, Inc. may underwrite the products referenced on this website. Legal Disclaimers.

Footnotes

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Open enrollment is Nov. 1 to Dec. 15, 2019 in most states. Find out if you could qualify for an ACA subsidy.

 

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