What is Critical Illness Coverage?

At some point or another, many of us will experience a severe illness or life-changing diagnosis. While this isn’t fun to think about, preparing for the unexpected is essential, which can protect your finances and well-being.

High-deductible health plans are becoming more and more common. While the premiums might be lower, this can be a double-edged sword – you might be in a pinch if you have a severe diagnosis. Many people are just one diagnosis away from a tremendous financial burden.

This is where critical illness coverage comes into play – this form of insurance can help you cover your bases in the event of an emergency health crisis or diagnosis. Keep reading to learn more about critical illness coverage.

What does Critical Illness Cover?

Critical illness insurance is a type of supplemental health insurance that will give you a lump sum of money to take care of lost income or unexpected medical expenses if you ever experience a disability or severe illness diagnosis. This type of coverage is not meant to replace your standard health insurance, but instead, supplement it.

This insurance is crucial because it can financially protect you if you ever have a disability or illness that prevents you from working. The benefit can help you pay for large medical bills, therapy or rehabilitation costs, lost income, or everyday expenses like groceries while undergoing treatment.

Critical illness insurance usually covers severe health conditions like heart attack, stroke, advanced cancers, multiple sclerosis, and Parkinson’s Disease, in addition to several others. Usually, this is the best life insurance after a heart attack!

How Critical Illness Coverage Works

When you are diagnosed with a serious illness listed within your policy, your critical illness insurance will pay out a lump sum, which you can use for any expenses related to the cost of your illness. Not only does this include medical bills and procedures, but also transportation, child care, accommodations, and more.

Your coverage limit will depend on the policy, but many policies range from a few thousand dollars up to $100,000.

Not every illness or medical condition is covered by this insurance. For example, if you have a less-advanced cancer or mild diabetes, it may not be covered. Chronic illnesses are also frequently exempted.

In many cases, if your illness returns or if you have a second heart attack, it may not qualify for coverage within your policy. This is why it’s essential to read the details of your particular policy – you don’t want an unexpected expense after a severe diagnosis!

So, what does critical illness insurance actually cover? Most policies typically include the following:

Advanced cancer
Heart attack
Stroke
Organ transplants
Coronary bypass
Other life-threatening conditions

Ultimately, the level of coverage and number of conditions covered will come down to your insurance provider and the coverage they offer.

Critical Illness vs. Life Insurance

At a high-level overview, both critical illness and life insurance do the same thing – they pay a lump sum to protect you and your family during the worst-case scenario. However, the main difference is when the payout is made. With a life insurance policy, the benefit is paid out after your death, and your beneficiaries will receive it to pay for funeral costs and living expenses.

With a critical illness policy, you will receive the benefit after your diagnosis while you are still living. With this in mind, life insurance mainly benefits your living relatives or loved ones, while critical illness insurance will help you stay afloat as you focus on recovering from your illness.

In most cases, it’s good to have coverage for both critical illness and life insurance. With both insurance policies, you will be taken care of if you ever have to deal with unexpected and large medical bills during a loss of income. Then, after you pass, your family will also be taken care of so they can continue to have their living expenses covered as they grieve your death.

Why You Might Need Critical Illness Coverage

There are many reasons for purchasing critical illness coverage. The first reason is financial protection in the case of a serious illness. If you don’t have a substantial emergency fund or can’t afford to be without an income as you undergo treatment, a critical illness policy can really come in handy, helping you pay for your basic living expenses and medical treatment so that you can focus on recovery.

It’s also helpful if you don’t have a strong health insurance policy or if you do have a high deductible policy. If you know that you won’t be able to afford the high deductible on your health insurance, it’s always a good idea to get critical illness coverage.

Critical illness is also a good idea if you have a mortgage. Both life and critical illness coverage for mortgage can help you keep up on your housing payments during your treatment. Or, in the unlikely event of an early death, it can help your family continue to pay the mortgage and stay in the family home.

Combining these two types of coverage is an excellent option if you want to keep your house while you are alive and in the family after you pass.

Who Should Consider Critical Illness Coverage?

At this point, you might be wondering if critical illness coverage is the right choice for you. Here are some of the top contenders for critical illness insurance:

People with families and dependents: If you have a spouse or children depending on your income, you should consider critical illness coverage. When you lose your source of income due to health conditions, the lump sum can help you put food on the table, pay for childcare costs, and keep the lights on.
Homeowners and mortgage holders: Your mortgage is likely your biggest expense, and it can be a massive source of anxiety if you are unable to work. Luckily, critical illness insurance can help you pay your mortgage and keep your home while dealing with unexpected illness and medical bills.
People with existing health conditions: If you have a history of heart disease or genetic factors leading to a higher risk of severe health complications, it’s a good idea to have your bases covered with a critical illness policy.

What to Look for in a Critical Illness Policy

When you’re shopping for a critical illness policy, it’s important to compare policies and different insurance companies to find the right fit for you and your needs. Here’s what you should consider:

Coverage details: Pay attention to the types of illnesses and conditions both included and excluded from your policy. This is when it’s vital to read the fine print. For example, if you have a health condition that could lead to diabetes eventually, you’ll want to verify that diabetes is covered in the policy. You should also make sure that in the unlikely event of a medical emergency, the benefit amount is enough to cover your living expenses and medical bills for at least a few months.
Policy term: You don’t want the term to expire before you are eligible to receive benefits.
Policy costs: There are several factors that can impact the premium, including age, lifestyle, and health status. Try to find a policy that fits your needed parameters while providing a comfortable cost aligning with your budget.
Additional features: Many critical illness policies offer a lump sum payout, but others provide monthly benefit payments – be sure to check the policy for the type of benefit payout. You should also look and see if you can add any other riders, like a return of premium rider. This is when a portion of your premium is paid back to you if you never make a claim.

Critical Illness Coverage: Other Factors

Preexisting Conditions

Unfortunately, it can be challenging to get coverage if you have a preexisting condition, like cancer, asthma, obesity, or high blood pressure. If you have a preexisting condition or an illness that runs in your family, prioritize this when looking for an insurer. You can find a company prepared to cover it with higher premiums or a policy that will make an exception for your condition.

Higher Premiums and Coverage Restrictions

If you have mild health issues, like asthma or high cholesterol, you may have to pay higher premiums for critical illness coverage. This is because you likely have a higher risk of more severe conditions because of your existing health issues.

Before you shop for insurance, try to get your health in check by quitting smoking, reducing your alcohol intake, exercising regularly, and eating a balanced diet.

Even if you have a health condition, you may pay a bit less in premiums if you can prove that your health is improving. Be sure to have your doctor document your progress!

Critical Illness Insurance Alternatives

Because critical illness policies are often limited when it comes to the scope of coverage, many people opt for other insurance alternatives. Here are a few of the most common.

Disability insurance: If you cannot work due to a disability, disability insurance will cover a portion of your lost income so you can stay up-to-date on your bills and living expenses. You can purchase this as a stand-alone policy or as a rider on a permanent life insurance policy.
Long-term care insurance: This type of coverage will cover you if you ever need to be placed in a nursing home or need daily assistance for everyday tasks. It can also help with hospice or other out-of-pocket expenses.
Guaranteed insurability rider: This product must be purchased along with a life insurance policy. Basically, it allows you to increase your coverage at different times without additional underwriting or medical exams, so you are guaranteed to qualify.
Health savings account (HSA): This isn’t necessarily the best alternative to critical illness insurance, but it does help. HSAs are offered with high-deductible health plans, allowing you to contribute pre-tax dollars into an account reserved for medical expenses. Over time, this can grow substantially, helping you cover unexpected medical bills with a high-deductible plan.

Common Misconceptions about Critical Illness Coverage

Myth 1: Only the Elderly Need It

Fact: It may seem like only older adults, who are more likely to have serious health conditions, need critical illness coverage, but this isn’t necessarily true.

Many people are diagnosed with cancer and other life-threatening conditions at a young age, and this is only on the rise. Even if you’re young, critical illness insurance can give you peace of mind and protect your future self.

Myth 2: Health Insurance Offers the Same Protection

Fact: Critical illness insurance is different from normal health insurance. Standard health policies often have a deductible, many with high deductibles, which can quickly become a burden for the average person or family.

In addition, regular health insurance will only cover medical expenses, while critical illness covers lost income and any type of expense related to the life-threatening health condition, from child care to transportation.

Myth 3: It’s Too Expensive to Be Worthwhile

Fact: This is simply untrue. Critical illness coverage has proven to be a worthwhile investment for many families, covering their monthly mortgage payments, groceries, transportation costs to treatment facilities, prescriptions, and the treatments themselves. If you have a catastrophic diagnosis, this coverage will pay off big time.

Conclusion

Critical illness coverage can financially protect you if you ever receive a life-threatening diagnosis. In this situation, the last thing you want to worry about is paying your bills and making money. This is why critical illness insurance is so important – it gives you peace of mind and protects your financial future.

It’s vital to assess your own risk, whether you have preexisting conditions or genetic risks, while also considering your finances. Critical illness coverage could be helpful if you have a high risk with a small savings account.

At Think Life, our goal is to provide insurance products that align with your unique needs – contact us today to learn more and see if critical illness coverage is right for you!