What Is Critical Illness Insurance and Do I Need It?

Serious illnesses such as cancer and heart disease are leading causes of death that impact millions of Americans yearly. In addition to negative health impacts, a critical illness such as these can result in hefty medical bills. However, a critical illness insurance policy can help keep you financially afloat so you can focus on recovery.

What Is Critical Illness Insurance?

Critical illness insurance is a long-term insurance policy that compensates insureds with a lump-sum payout when they’re diagnosed with a serious health condition detailed in the policy. Most plans include coverage for cancer, heart disease and stroke. Since patients with a critical illness often face extreme financial burdens, this insurance type functions as a safety net.

Critical Illness Insurance vs. Disability Insurance

Critical illness and disability insurance each provide financial aid for people diagnosed with a serious illness. But while critical illness insurance has a limited list of diseases included in coverage, disability insurance covers any disease or injury that prevents you from working. 

That said, disability insurance typically offers lower monthly payouts, while critical illness insurance offers greater lump-sum compensation. 

Put simply, critical insurance offers limited coverage with larger payouts, while disability insurance offers broad coverage for less financial compensation on average. 

Enrolling in both options could be the right choice if you don’t mind spending more for more comprehensive coverage and peace of mind.

Although premiums are typically affordable, critical illness insurance should typically be a lower priority when compared to a standard life insurance policy.  Consider family history, current budget, and current health insurance coverage before committing to critical illness insurance.

Eric EstevezLicensed Independent Insurance Broker and Owner of HLC Insurance Broker, LLC

Eric Estevez is an independently licensed life insurance agent who serves as a financial professional for a multinational corporation. Upon graduating from William Paterson University with a bachelor’s degree in accounting, Eric kickstarted his career as a financial institution auditor. His first day on the job was Sept. 15, 2008…

How Does It Work?

Critical illness insurance policies vary from provider to provider but work relatively the same. The policy will outline a list of critical illnesses that qualify for compensation. If you are diagnosed with one of those illnesses, you receive a lump-sum benefit that you can use for any expense.

What Does Critical Illness Insurance Cover?

While there’s no universally accepted list of critical illnesses, here are some of the common illnesses listed on insurance policies:

Typically, the more you pay on your premium, the more coverage you’ll have.

Talk to your insurance provider for more information about your critical insurance coverage. Remember that you’ll have to provide proof of your critical illness with blood tests, MRIs or CT scans when necessary.

Mapping Out Your Retirement: Are You on Track?

Effective retirement planning is a click away. Learn about annuities that can bolster your retirement strategy.

Start With a Free Quote

The Benefits

Advantages of critical illness insurance include:

Peace of Mind

In the event of a serious diagnosis, it’s good to know you’ll have assistance to pay your medical bills

Cost

Premiums are typically lower than general health insurance plans.

Lump-Sum Payouts

Typically, policies compensate you with lump-sum payouts when you’re diagnosed.

Flexible Spending

When your policy pays you out, there are no limits on where you can spend your money. You can use your payout on transportation, child care, medical bills or anything else.

Tax-Advantaged

If you pay for your premium with after-tax income, you likely won’t pay taxes on your benefits.

But critical illness plans aren’t for everyone. They also have their disadvantages.

The Disadvantages

Critical illness insurance coverage is narrow compared to other types of insurance. If you’re diagnosed with a disease that your policy doesn’t detail, you won’t receive compensation. In contrast, disability insurance will pay out for any injury or illness that makes you unable to work, including many diseases that would qualify as critical illnesses.

Additionally, even if you are diagnosed with an illness detailed in your critical illness policy, you still might not receive coverage if the condition isn’t severe. For example, some policies may stipulate that if you’re diagnosed with cancer that hasn’t spread, you won’t yet receive your payout until it does.

Coverage Costs

The cost of a policy will vary depending on:

• Your age and gender
• Your family medical history
• Where you live
• Where you work
• If you smoke
• The amount of your lump-sum benefit

As you age and your risk for critical illnesses increases, the cost of your premium will increase and your benefits could decrease. If you’re a smoker or have a family history of diseases covered by your plan, these factors could also increase your premium. 

Generally, these policies are less expensive than a traditional health insurance policy since the coverage you receive is narrower. Critical illness insurance premiums can start as low as $25 per month and reach as high as $200, depending on your risk factors and level of coverage.

You can also pay a higher premium for a greater payout. Depending on your policy and premium, you could receive a lump sum ranging from a couple of thousand dollars to $100,000.

Get Your Free Guide to Annuities

Learn from the experts and get our 101-level guide, Annuities Explained, delivered to your inbox for free.

Download Now →

Do I Need Critical Illness Coverage

Critical Illness coverage could be right for you if you:

• Have a family history of critical illness
• Don’t have and can’t afford a traditional health insurance policy
• Want more coverage in addition to your health insurance policy
• Want the peace of mind that you will be safe in the event of a serious diagnosis

While you won’t truly know whether you need coverage or not until you’re diagnosed with an illness, it’s worth investing in a policy if it provides you peace of mind.

Buying Coverage

You can either add critical illness coverage to your personal life insurance plan or purchase it through your employer. 

Before buying coverage, ask the following questions:

1. What illnesses will be covered by the plan?
2. What is the process for filing a claim?
3. Will you receive compensation in monthly payments or a lump sum?
4. Will you receive coverage if your illness returns after you recover?
5. Is there a waiting period before compensation?

Knowing the answers to these questions will help you understand what you’re paying for and whether it’s worth it.

5 Tips To Cope With a Serious Diagnosis

Receiving a serious diagnosis can completely disrupt your life. For example, patients with cancer might experience fatigue, nausea, anorexia and other side effects, which can be mentally and physically draining. 

Terminal illnesses can prevent you from working, engaging in habits you’re passionate about or stress you out to the point that you don’t want to get out of bed. 

Major health complications might cause you to feel despair, grief, anger, frustration and a myriad of other difficult emotions. These reactions are natural and often unavoidable, but there are ways to cope with your new living situation.

Here are some tips for coping with a serious diagnosis:

Seek support:

Reach out to friends and family to remember you aren’t alone.

Find a source of joy:

Try to pursue hobbies and activities that bring your happiness and a sense of purpose.

Care for yourself:

Don’t forget to eat, sleep and stay active as much as possible. Regular exercise can help you reduce symptoms of anxiety and depression, while eating the right foods correlates to better feelings of well-being. 

Understand the facts:

Researching your illness and how it will impact you mentally and physically will help you prepare for its symptoms.

Express yourself:

Talk with loved ones, write in a journal or engage in a creative outlet to express your feelings. 

It isn’t easy to deal with a serious diagnosis, but by caring for yourself and finding sources of joy and support, you can minimize feelings of anxiety and depression.

Next Steps

Critical illness insurance can help provide you with peace of mind that if you’re diagnosed with an illness on your policy, you can pay your medical bills. Critical illness insurance is more expensive for older adults and may feature fewer benefits. 

For more information about critical illness insurance, check out the infographic below.

Before buying a policy, research your insurance options to see what plan would work best for you. If you’re worried about your family’s financial well-being if something happens to you, it could be worth looking into life insurance.