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Critical Illness Insurance: What Is It? Who Needs It?

Critical Illness Insurance: What Is It? Who Needs It?

In this article

— Last Updated May 27, 2022

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8 mins
Reviewed by
Eric Berkman

Guide Critical Illness Insurance: What Is It? Who Needs It?

— Last Updated May 27, 2022

Stephanie Wilson

Director of Operations


Reviewed by

Eric Berkman

A study published in the American Journal of Public Health found that medical bankruptcies account for 66.5% of all bankruptcies in the United States. It’s easy to understand why nearly one in three Americans delay getting the necessary medical care because of cost concerns.

Medical expenses in the US can be so high that they lead to financial ruin, but the cost of not getting the care you need could be significantly higher. That’s why it’s critical to get health insurance.

However, traditional health insurance policies aren’t nearly enough to cover the high costs of various life-threatening illnesses. That’s where critical illness insurance (CII) comes in.

If you’re fortunate, you’ll never need critical illness insurance. However, you never know what the future may bring. Getting CII coverage might protect you from financial ruin if you ever develop a serious illness or experience a health emergency like a heart attack or stroke.

This guide will help you learn all about this type of insurance, including what it covers and excludes, the factors that affect its cost, who may need it, and more.

What Is Critical Illness Insurance?

Critical illness insurance is a type of insurance that provides you with financial support in case you’re ever diagnosed with one or more critical illnesses included in your chosen policy, such as cancer, heart attack, or stroke.

It’s a tax-free benefit payment that you get as a lump sum to cover the necessary medical bills (including any special treatments that traditional health insurance policies exempt) and pay for the required prescription medication.  And you typically get that lump sum of money very quickly, which is what really enables people to get the care they need, while maintaining their living standards, as quickly as possible when a critical illness strikes.

It can help you cover any everyday living expenses as well, so it can come in handy if you can’t work due to a potential illness. You can use it to cover transportation expenses for getting to and from treatments, in-home care services, rent or mortgage payments, childcare costs, and any other daily expenses during the recovery.

Terminally-ill patients can even use the funds to take a vacation with family or friends.

Who May Need It?

Critical illness insurance can be a great choice if:

  • You’re at risk of a certain critical illness like cancer or a severe health condition like a heart attack or stroke;
  • You don’t have an emergency fund to cover potential medical expenses due to a serious illness or medical condition;
  • You’re a breadwinner in your family;
  • You don’t have an employee benefits package that includes paid time off when you can’t work due to an illness or disability.

According to the American Cancer Society, the lifetime risk of developing cancer is 40% for men and 38.7% for women.

The CDC reports that around 850,000 people in the US have a heart attack every year. There’s a new heart attack every 40 seconds, while one person dies from heart disease every 36 seconds.


The CDC’s stroke statistics in the US show that over 795,000 people in the country suffer a stroke every year.


This prevalence of serious illnesses and health conditions makes critical illness insurance one of the best types of financial protection that anyone could get, especially those at risk.

What Does It Cover?

Critical illness insurance policies include three main categories:

  • Cancer;
  • Heart conditions;
  • Organ damage.

You can include one or more critical illnesses or conditions in your policy. Keep in mind that there are certain eligibility requirements for each category.

If you’re diagnosed with life-threatening cancer, the policy will typically pay out the full benefit amount. If the cancer isn’t particularly serious, you may receive a partial payment — typically only 25% of the full benefit amount. If it’s early-stage cancer that hasn’t spread, you may not be eligible for a payment.  Make sure you talk to your agent about it so you know exactly what will be covered if benefits are needed.

Common heart conditions that make you eligible for a full benefit payment include a heart attack and a stroke. You may receive only a partial payment if you get coronary artery disease.

As for organ damage, CII typically provides the full benefit payment to cover a major organ transplant and end-stage kidney failure. It doesn’t typically cover bone marrow transplants.

Depending on the insurer, you may encounter an “Other” category instead of organ damage. That category lets you include many more critical illnesses or medical conditions in your policy, such as:

  • Amyotrophic lateral sclerosis (ALS);
  • Multiple sclerosis;
  • Arthritis;
  • Dementia;
  • Alzheimer’s disease;
  • Parkinson’s disease;
  • Traumatic brain injury;
  • Connective tissue disease;
  • Angioplasty;
  • Coronary bypass;
  • Cystic fibrosis;
  • Kidney failure;
  • Lupus;
  • Paralysis;
  • Severe burns;
  • Loss of hearing, speech, or vision;

Exceptions and Stipulations To Keep in Mind

Critical illness insurance doesn’t cover all types of critical illnesses so you are maybe wondering is critical illness insurance worth it. For those covered in your policy, you’ll be eligible for a payout only if you become extremely ill or fully disabled.

CII doesn’t cover chronic diseases, such as diabetes, asthma, or pre-existing medical conditions. If you have a pre-existing condition that causes a critical illness, the policy won’t cover it.

As mentioned above, there are payout limits in every category, but it’s crucial to know that you can receive the full benefit in a single category only once.

For instance, if you develop a coronary artery disease and receive a 25% benefit payout to cover the necessary treatment, you would have the remaining 75% of the full benefit to cover for any other illness under the same category. Even if that illness, such as a stroke, typically includes the full benefit, you wouldn’t get more than 75%. That goes for every category included in the policy.

If you get a CII policy, your monthly premiums might increase as you age, depending on the insurer. Most insurers will cut your potential payout in half once you reach 65 or 70 years of age. This is called the age reduction schedule.

Another thing to keep in mind is that most critical illness insurance policies expire after a certain age (typically 70 or 75).

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Individual vs. Group Insurance Policies

There are individual and group critical illness insurance policies. The former is available at private insurance companies, while the latter often comes with employee benefits packages.

Individual CII Policies

An individual CII policy is a great option if your employer doesn’t offer a group CII policy or you don’t find the coverage particularly favorable. You can choose any critical illnesses and/or serious health conditions you want the policy to cover.

You can get a standalone CII policy or add a critical illness rider to your existing life insurance for an additional cost.

Group CII Policies

More and more employers offer group critical illness insurance policies to help employees minimize any financial troubles that they may experience due to an unexpected serious illness. Whether they’ll cover some or all of the coverage costs varies from one employer to the next.

One of the most notable benefits of group policies is their portability. If you stop working at a particular company that provided you with group CII, you’ll still likely be able to use it. As long as you pay the full premium amount, you should be able to convert it into an individual CII policy.

Factors That Affect The Cost of Critical Illness Insurance

Many factors impact the cost of your insurance coverage, including:

  • Age – The older you are, the higher premiums you’ll need to pay, as getting older increases the risk of various health problems. That’s why getting insurance while you’re young is the most affordable option.
  • Health – If you’re in good health, you’ll pay less in monthly premiums.
  • Family medical history – If your medical history includes certain serious health conditions or illnesses, your insurance costs are likely to be higher.
  • Occupation – Various dangerous occupations tend to push up insurance premium costs since they increase the risk of injury or death. If your job puts you at such risk daily, you can expect to pay more for the insurance.
  • Lifestyle – Smoking, drinking, and dangerous hobbies like various extreme sports can increase the premiums as well, since they put your health at great risk.
  • Coverage level – The more critical illnesses and serious health conditions you include in your policy, the higher premiums you’ll pay.
  • Premium type – Depending on the insurer and policy, your premiums can be reviewable or guaranteed. The former are reviewed after a specific time (typically every five years), when they usually increase since you enter a new age range. The latter remain fixed throughout the policy’s life, but they can be slightly higher than their reviewable counterparts. Still, it’s good to know what you’ll be paying for years to come.

How To Get Critical Illness Insurance Coverage

It can be challenging to choose an insurance provider and the right coverage, with so many options. Here are some of the critical steps to take.

Seek Help From a Professional

An independent financial advisor or insurance agent can provide you with expert advice necessary for making an informed decision. They can walk you through all the available policies and help you select the most suitable coverage for your needs.

Compare Different Policies

Once you have a shortlist of reliable insurance carriers, take the time to go through all the policies. Compare their conditions and see what they cover and exclude. Those vary from one provider to the next.

If you have a pre-existing medical condition, see if any provider might cover it. If you find one, remember that they might charge higher premiums.

Don’t make any assumptions; ask the provider or your insurance agent to clarify any potential confusion. Don’t forget to read the fine print. That’s where you may find some of the most critical information regarding your policy.

Be Honest About Your Health

You have to be honest about your current health and family medical history if you want a good critical illness plan. Otherwise, your chosen provider might reject your potential claim. 

For instance, if you have a genetic predisposition to a certain disease and you fail to disclose that information to lower your premiums, the insurer will find out because they will check your medical history. If you have a certain disease like diabetes, you can get critical illness insurance for diabetics.

Consider a Waiver of Premium

If you already have life insurance, consider adding a waiver of premium to the policy. That’s the critical illness rider mentioned above.

Apart from offering the same benefits as a standalone CII policy, this add-on cover will help you pay the monthly insurance premiums if you can’t work due to an illness or disability. However, you need to be off work for at least six months for that protection to kick in.

Take the Time To Think it Through

One of the best things about these policies is that you can get a full refund if you cancel within 30 days (as long as you haven’t made a claim). That’s great if you come across a better deal.

You can cancel your CII policy after that 30-day threshold, but the insurer may not reimburse any premiums that you may have paid already.

Alternatives To Consider

If you don’t like all the limitations of critical illness insurance, you can consider any of the options below.

Disability insurance will cover nearly any serious health condition, as long as it prevents you from working. Contrary to critical illness insurance, there are no other conditions for receiving the benefits, which are higher and last longer.

Disability insurance will replace around 60% of your gross, pre-tax income if a serious illness or disability prevents you from working. There are no time limitations for receiving payments; you can continue receiving them until your policy expires.

If your employer offers a group disability insurance plan or a high-deductible health plan, you can consider an FSA (Flexible Spending Account) or an HSA (Health Savings Account). Both are pre-tax benefit accounts that can help you cover qualified medical, dental, and vision expenses.

However, unlike Critical Illness Insurance, Disability Insurance will not a lump sum. Instead, you’ll receive installment payments similar to how you get your paycheck.


Medical expenses due to a life-threatening illness or a serious medical condition can wreak havoc on your personal finances. Critical illness insurance can be an excellent financial buffer in such unexpected situations.

Alleviating a great portion of the financial worry, especially if you can’t work for an extended time, CII can help you focus on your recovery while getting that lump sum payment.

Need advice on critical illness insurance? Contact us or schedule a free consultation, and we will get back to you soon!

Stephanie Wilson


December 30, 2021

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