While your health insurance will cover most of your medical expenses and costs associated with some medical issues, it won't cover you for lost income and non-medical expenses you incur if you are unable to work due to your illness.
For example, if you have a debilitating stroke or heart attack, your insurance will cover treatment, but you may have to foot a large portion out of pocket, and you may need extra funds during your recovery to make ends meet.
So, how do you pay for the expenses that medical insurance and disability insurance do not cover? Critical illness insurance can fill the gap when you need it most.
Critical illness insurance can be an affordable form of income protection for people who aren't eligible for disability insurance and might struggle to make ends meet if they get sick. This may include stay-at-home parents, freelancers, or those working part-time.
Critical illness insurance might also be a good call for those with a family history of certain serious conditions, like heart disease or cancer.
How it works
Critical illness insurance will pay you a lump sum in cash in case of a serious illness. The number of covered illnesses depends on the policy, but the average is 19. Some common ones include:
- Stroke
- Heart attack
- Cancer
- Serious COVID-19 hospitalization (depending on the severity and incapacitation)
- Alzheimer's disease
- Kidney failure
- Paralysis or paraplegia
The size of the payment depends on the policy limits. It can range from $5,000 up to $100,000. A few policies offer a lifetime maximum of up to $500,000. The higher the lifetime maximum, the more you will pay in premiums.
Typically, individual critical illness coverage is guaranteed renewable for life as long as the policy is purchased before the age of 70. That said, after an insured turns 70, the policy's benefit amount is reduced by half.
That means if you buy critical illness insurance with a $50,000 benefit amount before age 70 and make a claim when you are 76, the policy will pay $25,000.
A critical illness policy is activated when you're diagnosed with a qualifying illness. The sum of money you'll receive is spelled out in your policy documents and disbursed tax-free.
Once you have the funds, you can use them for anything you need, like health insurance deductibles or copays, special equipment, transportation, and even to pay your mortgage, utilities, and more.
How much it costs
The cost of a critical illness plan will vary based on your age, health, whether you smoke, and what kind of work you do. The younger and healthier you are, the less expensive it is.
Critical illness insurance can be relatively inexpensive.
A 35-year-old non-smoking male architect in Savannah, Ga., would pay about $50 per month for a single-plan benefit of $50,000. At 55, that same man would pay $148 a month. Smoking raises premiums substantially.
The policy price will also depend on how many illnesses or health issues a policy covers.
The takeaway
Critical illness insurance can be purchased as a standalone product or as a rider to a term life insurance policy, which some insurance companies offer. Keep in mind you can't add a critical illness rider to an existing policy—only new ones.
If you have questions, please give us a call.