Critical illnesses affect millions of Americans each year.
Whether it’s a member of your own family or a close friend, we all know the emotional and financial hardships associated with critical illnesses like cancer, heart attack, or stroke. While regular health insurance covers some of the costs for treatment and care, it doesn’t cover everything. Critical illness coverage, a type of supplemental health insurance, exists to help you pay for uncovered costs.
If you’re diagnosed with a critical illness that is covered by your policy, you can submit a claim with your insurance company. Once confirmed, the insurance company will pay you a lump sum of money, typically ranging from $10,000 to $100,000. The most common benefit amounts are $25,000 and $50,000. Covered critical illnesses vary from plan to plan. Most policies cover cancer, stroke, and heart attack, but additional covered critical illnesses may include:
- Major organ transplants
- Kidney failure
- Coronary artery bypass surgery
- Multiple sclerosis
- Amyotrophic Lateral Sclerosis (ALS)
- Hearing loss
- Paralysis
- Blindness
- Coma
- Severe burns
- Loss of speech
The money given to you as part of critical illness coverage can be used for anything. This includes health insurance deductibles, copayments, and coinsurance, but it also includes non-medical expenses as well. For example, you could use the coverage to pay for:
- Out-of-network specialists
- Travel and lodging for treatment far from home
- Childcare
- Living expenses, such as mortgage, car payments, utility bills, or groceries
It’s important to read the terms of your critical illness insurance carefully, since the terms for payout are very specific. Depending on the policy, cancer coverage can vary depending on whether or not the cancer is invasive or non-invasive. If you’re diagnosed with invasive cancer, it’s likely you’ll receive the full benefit amount. Non-invasive cancer, however, may only get you a fraction of the amount — typically 25%. Your policy may also have a specific waiting period for cancer (usually a month from the day your coverage starts), which means you will not get any money from the policy until that time is up.
Critical illness coverage does not include any pre-existing conditions that you were diagnosed with before purchasing a policy, such as diabetes or asthma. It also won’t cover any self-inflicted injuries, or conditions caused by substance abuse, illegal activities, or acts of war.
The cost of critical illness insurance depends on several different factors, including age, gender, current health, nicotine usage, and the method you use to enroll (either buying it yourself or getting it through an employer). The average monthly cost of critical illness coverage is around $50-$100, though it can be upwards of $200 per month if you have pre-existing health conditions or smoke. Some policies may also reduce your benefit by 50% when you turn 65, while others cap benefits anywhere from ages 64-80.
Your critical illness payout may be taxable, depending on who pays the premium. If you pay for the policy out of pocket, then the income tax has already been paid, and your critical illness benefits will not be taxed. However, if your employer pays the premium, or if you use a pre-tax payroll deduction, then the benefits are taxable. In the case that both you and your employer pay for the critical illness coverage, only the part of the payout paid for by the employer is taxed.
Since we never quite know what the future holds, everyone could benefit from critical illness coverage. However, if you have a family history of critical illnesses covered by the policy, you may want to consider purchasing a plan. This is especially true if you are currently healthy, since the monthly costs will likely be lower now than they would be after receiving a diagnosis. Critical illness insurance may also be a good option for those enrolled in a high-deductible health plan (HDHP), particularly if you haven’t yet met your deductible limit. You may also wish to purchase critical illness coverage if you don’t have an emergency fund or are worried about the potential of future medical issues.
Medical bills account for 66.5% of all bankruptcies in the U.S., which critical illness coverage could help prevent.