Is critical illness insurance worth it?
When someone is diagnosed with or experiences a critical illness, such as a heart attack, stroke, or cancer, it can disrupt life for the whole family. Dealing with a potentially debilitating medical issue means that daily routines tend to go out the window — and among other things, that can lead to all sorts of unplanned extra expenses for things like transportation, help around the house, additional child care, pet care, and more.
And the chance is by no means remote: The Centers for Disease Control reports that in a given year, about 805,000 people in the US have a heart attack – that's one every 33 seconds.1 Thousands more have strokes or are diagnosed with cancer and other critical illnesses. A critical illness insurance plan can help protect your financial well-being by directly paying you a benefit payment that can be used for any purpose. But should you consider it?
What is critical illness insurance?
Critical illness insurance is a type of supplemental health insurance that pays a lump sum benefits directly to you — not your medical provider — when you (or a covered dependent) are struck with a covered ailment. You can use your benefit for things like paying your health insurance deductible or other out-of-pocket medical expenses, as well as non-medical and regular living expenses. But importantly, it's not a substitute for health insurance that covers your medical bills.
How does critical illness insurance work?
If you or a covered family member experience a condition or illness covered under your policy, you can contact the insurance company directly, provide a doctor or hospital bill, and soon after, the benefit payment will be sent to you or deposited into your bank account. How much will you get? That depends on the policy and the specific health issue.
Reasons to consider critical illness insurance
Critical illnesses such as heart attack, stroke, and cancer are serious, stressful health conditions and events that can impact physical, emotional, and financial well-being. It's an affordable way to supplement and pay for the additional expenses that can come with serious illness. Plus, some of our policies pay out benefits for preventing, diagnosing, and treating less serious conditions.
That's why a growing number of employers are considering offering optional benefits like critical illness coverage to help support employee financial well-being. And when it's available through work, it's usually easy to get and pay for. However, not all policies are the same, and some plans provide benefits for more health conditions than others. So, it's important to check what's covered before signing up.
Plans may also offer mental wellness and even family planning benefits—such as support for infertility treatments.
It’s also important to know what may not be covered
These plans aren't designed to pay medical bills and shouldn't be considered as an alternative to traditional health insurance. Also, critical illness plans typically don't pay benefits for injuries like broken bones (which are usually covered by accident insurance), and policies may exclude a pre-existing condition. Also, many common chronic conditions, like asthma, aren't usually covered. Again, a plan's schedule of benefits should clearly define what is covered – and if a health condition isn't listed, you can assume it isn't covered.
Other supplemental health benefits—and alternatives to critical illness insurance
Every health and medical condition is unique and can impact household finances. That's why there are different types of supplemental health insurance that cover different types of issues, including hospital indemnity insurance, cancer insurance, and accident insurance. These benefits may be offered by your employer and can be purchased as an alternative to — or in addition to — critical illness insurance to help ensure that you don't have to choose between taking care of your health and taking care of everyday expenses.
Take the next step
Ask your supervisor or HR department whether critical illness insurance is available as part of your employee benefits. And if you'd like more information about how to decide which employee benefits are right for you, here's a guide that can help.
Frequently asked questions about critical illness insurance
Do you think you'll need extra financial support if you or a family member is ever diagnosed with a covered critical illness. If so, then yes, you may want to consider critical illness insurance. Severe illnesses often require specialized treatments, extended hospital stays, and long recovery periods, which can be financially draining. This type of coverage pays lump sum benefits directly to you, and you can use the money as you see fit, even for living expenses such as groceries, rent, or mortgage payments.
When an unexpected health issue strikes, the out-of-pocket medical and non-medical costs can be substantial — and many people may have to dip into savings or even go into debt to cover those expenses. Critical illness insurance is particularly helpful for people looking to supplement their existing health insurance because they’re concerned about these out-of-pocket expenses. The benefit payment can provide financial confidence if you become critically ill.
However, not everyone needs or should get critical illness insurance. Typically, the younger and healthier you are, the less likely you are to take advantage of it in the immediate future. On the other hand, you may not want to put off getting it for too long because if you develop a health issue, it may be considered a pre-existing condition that won't be covered. Those struggling to afford traditional health insurance should prioritize that coverage before considering a supplemental plan like critical illness insurance. And people on the other end of the financial spectrum with significant savings and assets may not need this added layer of financial protection.
According to Investopedia, some plans can cost as little as $25 per month, but premium costs vary depending on the policy's specifics.2 Plans that cover more conditions and offer higher benefit levels will generally cost more than more basic plans. On the other hand, if you purchase benefits through your employer at group rates, the cost is typically lower than if you purchased a comparable plan on your own. Also keep in mind that the premiums may vary by age. Younger individuals typically pay less than older individuals.
Despite their benefits, critical illness policies can have drawbacks. There’s the cost to buy critical illness insurance, which may or may not work within your budget. Also, you may have some overlapping protection from another source. Before purchasing critical illness insurance – whether through work or on your own – you should always read through the schedule of benefits to understand what’s covered and how benefits are paid.
A critical illness policy provides financial support following the diagnosis of a covered critical illness. The benefit is paid to you so that you can focus more on recovery and less on expenses, such as added child care, specialized equipment or home modifications. Plus, some policies pay out benefits for preventing, diagnosing, and treating less serious conditions. The financial support it provides can help keep you from depleting your savings or going into debt while you are dealing with a serious health issue.