What Is Critical Illness Insurance?

Medical bills and the associated costs of needing health care—such as lost income from missing work for treatment and recovery—can be a tremendous burden. Health insurance often falls short in covering medical costs, and if that’s your case, you may feel forced to decide between finances and health care.

However, there are insurance products that can help close the gap between health insurance and health care costs, and critical illness insurance is one such option.

What Does Critical Illness Insurance Cover?

As the name implies, critical illness insurance covers serious illnesses and medical needs such as:

  • Cancer

  • Heart attack

  • Stroke

  • Coronary bypass surgery

The coverage will vary by plan and may extend to other illnesses and conditions such as renal disease, loss of vision, and loss of hearing. As you might expect, the more comprehensive the plan, the more the insurance tends to cost.

In general, however, critical illness insurance provides low-cost coverage. The exact costs can differ significantly based on your age, amount of coverage, and other factors, but some policies on the low end of the spectrum can be attained for just a few dollars per month.

How Do Critical Illness Insurance Claims Work?

If you have critical illness insurance and face one of the conditions covered by your plan, the insurer will likely pay out a lump sum, which could range anywhere from around $10,000 to $100,000 depending on your plan.

This payout can be used for essentially anything, including medical bills that your health insurance doesn’t cover to mortgage payments that you would otherwise have trouble meeting due to lost income.

The specific payouts and the terms required to qualify for the payouts vary from plan to plan, and you should also be aware of any restrictions. For example, you may need to be a policyholder for at least 30 days before making a claim, and there may be a so-called survival period that requires a policyholder to live for at least 30 days following the diagnosis of a critical illness. 

It’s also important to note that potential payouts can decrease once you reach a certain age. For example, a plan might specify that when you turn 65, the maximum coverage would decrease by 50%.

Is Critical Illness Insurance the Right Choice?

While critical illness insurance can be helpful for many individuals looking to close the gap between health insurance coverage and the money they might need in the event of a serious illness, it may not be the best choice for everyone.

Due to the limited conditions that this insurance covers and the one-time payments, you might find other options preferable.

For example, disability insurance tends to be more comprehensive and provide payments for the time that you are out of work. However, this coverage also tends to be more expensive and limits coverage for seniors.

As such, life insurance might be an option for seniors and others with the means to cover medical expenses during their lifetimes but want to ensure that they take financial care of their spouse or children after they pass.

You might also find that your health insurance alone is sufficient, as the Affordable Care Act caps out-of-pocket maximums ($7,900 for individuals, $15,800 for families).

Still, critical illness insurance can provide important protection, and it can even be used in combination with other insurance products to minimize financial risk. Take the time to compare insurance options to see whether critical illness insurance is the right choice for you or if you’d be better served by another plan.