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What Does Critical Insurance Cover? Everything You Need To Know

what critical illness insurance covers
Eric Berkman- Licensed Life & Health Insurance AgentRead Time: 8 minutes

Critical illness insurance or catastrophic illness insurance is an insurance policy that provides coverage for persons who find themselves in medical emergencies due to critical illnesses and diseases.

Because these medical conditions tend to incur unplanned medical costs and additional expenses, critical illness insurance policies provide additional funds in the form of payout cash to help mitigate additional costs in situations where traditional health coverage isn’t enough.

Although this type of insurance is quite affordable, this insurance policy covers only a few emergencies or illnesses. In the event of a serious illness, such as a stroke or heart attack, the insurance policy is designed to prevent patients from falling into the financial abyss.

More importantly, critical insurance is created to cover instances that aren’t included in your standard health insurance plan. Since treating life-threatening illnesses incur hefty costs that are usually more than your standard policy can cover, you have additional coverage to cover the worst-case scenario costs.

Read on to find out more about this type of insurance and see if it’s something you should take into consideration.

Critical Illness Insurance Policy

We live in a fast-paced world where getting older has somehow become a privilege. Naturally, insurance companies are working around the clock to make sure people can afford this privilege. Critical insurance was created out of the need to handle insurmountable medical bills after surviving a serious illness like a stroke or heart attack.

Even patients with high-grade medical insurance were struggling with the financial burden imposed on them after fighting one critical illness. From that moment on, it was clear that additional coverage was needed to allow these patients to mitigate their tremendous expenses. That is how critical illness insurance was developed.

It was designed to provide benefits in case of a policyholder experiencing one or more medical conditions:

  • Heart attack;
  • Stroke;
  • Organ transplants;
  • Cancer;
  • Coronary bypass;
  • Kidney failure;
  • Traumatic head injuries;
  • Multiple sclerosis;
  • Alzheimer’s disease;
  • Parkinson’s disease;
  • Coma;

Because these medical conditions require extensive medical treatment and care, their costs can easily outstrip traditional medical or health insurance coverage. People without a health savings account (HSA) or emergency fund will face the huge challenge of covering those medical bills.

One of the options is to opt for high-deductible health plans, but these plans come with a downside. Consumers get access to certain benefits, such as affordable monthly premiums, but aren’t really covered in case a severe illness strikes. That’s where critical illness insurance comes into play.

get critical illness insurance

When you face costs that your traditional insurance can’t mitigate due to treating critical illness, you can count on additional coverage provided by a critical insurance policy. It covers both medical and nonmedical costs, including child care, transportations, and so on.

In most cases, the insured will receive funds as a lump sum. Depending on your eligibility, policy limits can vary from just a few thousand dollars up to $100,000. The price of this type of insurance depends on an array of factors, including your family medical history, current health, age, sex, and the extent and amount of insurance coverage. After getting all the answers you need, you will know the answer to is critical illness insurance worth it.

Why Critical Insurance Matters

When it comes to purchasing critical insurance, you have two options – buy it through your employer, as a voluntary benefit, or on your own. There is also an option to add this policy to your current life or health insurance as a rider. You will get a lot of benefits of insurance too.

Many opt for this option as it’s affordable and offers the same benefit. Many employers have been increasingly receptive to these plans as they realized employees are concerned with additional expenses that their high-deductible plans don’t cover.

One of the best things about this coverage is that it can cover a wide range of things, such as:

  • Critical medical services;
  • Treatments and care not covered by traditional coverage;
  • Daily living and transportation expenses, including going to and from medical and healthcare facilities and treatment centers, installing lifts in homes for critically ill and disabled patients, and retrofitting vehicles to carry wheelchairs or scooters;
  • Paying for a vacation for terminally ill patients to allow them to recuperate and spend time with friends and family.

Unlike typical healthcare benefits, employees often cover the entire cost of critical illness plans. That is why this type of coverage is a money saver for both employers and employees. On the other hand you can also inform yourself on disability insurance for employers.

Affordable But Limited Coverage

This coverage is so popular because of its affordability and the option to get it through an employer. The most affordable plans can run as little as $25 a month — much more affordable than the standard, low-deductible health or medical insurance coverage.

However, the fact that it only reimburses the policyholder for just a few illnesses is what makes it questionable, especially if it happens that a person is diagnosed with an illness that isn’t covered by the policy. On the other hand, the more medical conditions the policy covers, the more the policyholder is required to pay.

All types of insurance policies are prone to an array of stipulations, and critical insurance is no exception. Aside from covering only the illnesses listed in the policy, they also provide coverage for these conditions under specific circumstances.

This is what you need to pay special attention to the most, as there are certain restrictions and limitations. They may include a wide range of different factors which may not be aligned with the specific needs of each policyholder.

Seniors should also be on the lookout for various limitations when considering purchasing these policies. There are limits for payout on some types of coverage for persons over a certain age. These limits are known as age reduction schedules, and they all come down to the fact that insurance payouts for seniors shrink as they grow older.

There are also situations when policy payment isn’t 100% guaranteed, but it also depends on different factors, such as the expected benefit ratio for specific policies. This ratio refers to the portion of future premiums that the employer views as return on investment as benefits. Its ratio is 60% of the premium, which means that 40% of the premiums are never covered.

What Critical Illness Insurance Cover

In case a life-threatening illness strikes, such as cancer, stroke, or heart attack, you might find yourself facing medical and other expenses that you have no funds to cover. A critical illness policy provides the benefit premium that can cover both medical and nonmedical expenses not covered by healthcare insurance and grocery bills, mortgage payments, rent, utility bills, etc. 

The list of critical illnesses covered by this type of policy includes medical conditions such as paralysis, cancer, renal failure, stroke, and heart attack. However, it varies from plan to plan as each one has a specific list of conditions and illnesses it covers. So in order to choose a good critical illness plan remember all the information from this article.

How To Buy Critical Illness Insurance Cover

If you need a direct lump-sum benefit to cover additional expenses not covered by your current policy, you can either buy it through your employer or yourself. You can also consider adding it as additional coverage to your personal life insurance policy.

The most common way to buy this policy is as a standalone insurance cover or as additional coverage that comes alongside life insurance. The latter is the most affordable option. There are three options to choose from:

  • Level term cover – the coverage premium remains the same until the policy runs out.
  • Increasing term cover – the coverage premium increases in line with the rising expenses incurred by the current medical condition and the cost of living.
  • Decreasing term cover – the coverage premium decreases depending on the outstanding debt on a repayment mortgage.

The cost of critical insurance can also vary. It depends on different factors, such as:

  • Amount of cover – the higher the premium, the higher the payment.
  • Age – the risk of getting ill increases as you get older, leading to an increased cost of cover.
  • Lifestyle factors – alcohol and drug consumption and smoking can also increase the cost of cover.
  • Medical and health history – if you’re in good health, you’ll pay less.
  • Occupation – the premium may increase depending on the level of risk associated with your job.

There are also pre-existing conditions to worry about when assessing the cost of insurance cover. The more pre-existing conditions a policy covers, the higher the premiums.

How To Know If You Need Critical Illness Cover

If you have people depending on you financially, this type of cover can prove valuable. It’s also worth considering it if you live alone. The reason behind this is simple – a serious illness can strike any time, any place. Aside from the health complications that it can bring, it also forces you to stop working, and that is where financial problems arise.

Despite your illness, you’re still obligated to pay for ongoing medical bills, utility bills, etc. There are also the costs of living to include in the equation. Even with your employer providing Statutory Sick Pay, it won’t be enough to replace your income and cover the costs of private medical treatments. If you’re self-employed, you can’t qualify for SSP. Therefore, it’s best to have a backup plan that will provide the necessary funds, and critical illness coverage can help.

Pros And Cons Of Critical Illness Insurance

Let’s quickly review some of the best advantages and disadvantages of critical illness insurance.

Pros:

  • You get a lump sum of cash the moment you’re diagnosed with a serious illness or medical condition covered under the policy;
  • The payout can be used to cover both medical and nonmedical expenses, including living expenses, utility bills, equipment, transportation, mortgage payments, etc.;
  • The premiums are both affordable and low;
  • You can add this policy to your current life insurance;
  • Users have three options to purchase this type of insurance;
  • This policy can also be purchased through your employer.

Cons:

  • Some medical and health conditions may not be covered;
  • Chronic and terminal illnesses are commonly exempted;
  • Recurrences of a condition or illness may not be covered;
  • Coverage might decrease depending on a specified age of the insured;
  • Some policies may include certain restrictions that apply to the particular circumstances under which insurance covers an illness.

Things To Consider Before Purchasing a Critical Insurance Cover

Since you can never know when an illness can strike, it’s best to consider some important things regarding buying critical insurance and ensure additional funds for dealing with the challenges and costs.

The first thing to consider is your current budget and the savings you possess. If you have medical insurance, count in the deductible too. Then, there are additional expenses to worry about, such as additional treatments and transportation costs to and from your medical care facility.

You should be able to predict what you’ll need coverage for, as this will tell you just how much coverage you’ll really need. The last thing to worry about is how much your insurance might cost. Finally, getting critical insurance coverage is also something to watch, as each of the three options comes with its own expenses.

Final Thoughts On Critical Insurance Cover

In the case of suffering from critical illnesses, medical bills are among the most common causes of bankruptcy. Because of that, critical insurance coverage might just be worth considering — Even more so if you have a family history of any of the illnesses we mentioned earlier.

Suppose you get diagnosed with any of the illnesses on our list. In that case, this type of coverage may provide additional finances to alleviate some of your worries regarding covering medical and nonmedical expenses. It also provides a certain level of financial flexibility that you can count on when it comes to paying for a variety of potential needs that may arise from your condition.

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

Sources

Kagan, J. (2021). Catastrophic Illness Insurance. Retrieved from Investopedia website:

https://www.investopedia.com/terms/c/catastrophic-illness-insurance.asp

U.S. Centers for Medicare & Medicaid Services. (n.d.). Health Savings Account (HSA). Retrieved from HealthCare.gov website:

https://www.healthcare.gov/glossary/health-savings-account-hsa/

Kumok, Z. (2021). Critical Illness Insurance: What Is It? Who Needs It?. Retrieved from Investopedia website:

https://www.investopedia.com/articles/personal-finance/010416/critical-illness-insurance-who-needs-it.asp

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