According to the CDC, someone has a heart attack every 40 seconds in the United States and roughly 805,000 Americans have a heart attack every year. Over 1.6 million Americans are also diagnosed with cancer each year. National costs associated with cancer care increased by 10% from 2015 to 2020, from $190.2 billion to $208.9 billion. While regular health insurance offers coverage for a wide range of illnesses, critical illness insurance policies provide payments in the event of a serious health diagnosis, such as cancer or a heart attack. Those payments can be used for non-medical expenses like child-care bills or mortgages. Critical illness insurance could provide you and your family with a financial cushion in the event of a serious medical condition. If you’re considering buying critical illness insurance, read on to see if this option is right for you.
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What is Critical Illness Insurance?
Critical illness insurance pays out benefits if you experience a serious medical condition. Premiums are relatively low because they offer less coverage than regular health insurance. Some critical illness insurance policies cover only one illness, while others cover a number of different critical illnesses. Premiums are higher for more coverage. Since traditional policies don’t cover many expenses, it’s not a bad idea to shop for policies that cover specific diseases. That being said, treat critical illness insurance as a supplement to your regular health insurance.
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What Does Critical Illness Insurance Cover?
There are varying critical illness insurance policies. The one you choose will affect the size of your monthly premiums. Some options cover a single illness, while others cover more. You will receive a tax-free lump sum if you’re diagnosed with a critical illness that’s listed on your policy.
Critical illness insurance will usually cover these three categories:
- Heart conditions – Most insurers pay full benefits for heart attack and stroke. Partial benefits are paid for coronary artery disease.
- Cancer – If your cancer diagnosis is life-threatening, you’ll receive a full benefit payment. For less serious cancers, expect to receive a partial benefit payment, and if your cancer is caught early, you might not be eligible for any payment.
- Organ damage – If you suffer from complications resulting from kidney failure or a major organ transplant, you should receive the full benefit payment.
Critical illness insurance may also cover these medical conditions:
- Parkinson’s disease
- Traumatic head injuries
- Coma
- Deafness
- Malaria
- Tetanus
- Sickle-cell anemia
- Blindness
- Severe burns
If your medical condition isn’t considered serious, don’t expect to receive payment. Critical illness insurance doesn’t cover chronic illnesses, such as diabetes or asthma. It also doesn’t cover pre-existing conditions. Some policies will cover your children for half the sum insured on your policy.
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How Much Does Critical Illness Insurance Cost?
Comprehensive health plans cover critical illnesses only to an extent. You are responsible for out-of-pocket costs with a high-deductible plan. Out-of-pocket expenses for marketplace plans are limited to $8,700 for individuals and $17,400 for families for the 2022 plan year. Critical illness insurance can offer you some extra help since you can use the lump sum to cover non-medical expenses, including your rent or mortgage.
Here are some factors that can affect the cost of critical illness insurance:
- Age – Expect the cost of coverage to be higher if you’re older
- Lifestyle factors – Smoking and alcohol consumption can increase the cost
- Health and medical history – Expect to pay less if you’re in good health
- Occupation – Your premiums will be higher if your job is high-risk
- Amount of cover – Your premiums will be higher if your policy covers more critical illnesses
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How Do I Buy Critical Illness Insurance?
Critical illness insurance is usually sold alongside life insurance, but you can also buy it as a standalone policy. If you’re in your 40s, it might cost you as little as $25 to $50 a month to get covered. Most providers will provide three coverage options:
- Level term coverage – Benefit amount remains the same for as long as you have the policy
- Increasing term coverage – Benefit amount increases alongside the cost of living
- Decreasing term coverage – Benefit amount gets reduced depending on outstanding debt
Some employers also offer critical illness insurance alongside health plans. In 2019, 23% of small firms and 62% of large firms offered critical illness insurance to their workers. 20% of firms that offered critical illness insurance to their workers made a contribution toward the cost of the coverage.
Here are some of the best critical illness insurance providers available on the market in 2022:
- Mutual of Omaha – Most comprehensive benefits
- AIG – Best for lifetime coverage
- American Fidelity – Best recurrent diagnosis benefit
- Aflac – Best for customizable coverage
- MetLife – Best for employees
- Colonial Life Insurance Company – Best for employers
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Pros and Cons of Critical Illness Insurance
| Pros | Cons |
| You can spend the payout however you want | You can only receive the full benefit once |
| You can use the payout to generate more income by investing a portion of the funds | There’s a maximum benefit limit for each category of coverage |
| High payout rate | Policies won’t cover every critical condition or illness |
| Some policies will let you bundle critical illness insurance for your children with your own | There’s a limit on the number of claims you can make |
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So, Is Critical Illness Insurance Really Worth It?
A critical illness can affect anyone at any time and at any age. Critical illness insurance is a way to protect you and your family from unexpectedly high expenses as a result of a serious illness. You should first look at your health insurance to see exactly what it covers. Critical illness insurance may be a good idea if you don’t need a lot of extra coverage, or if you can’t afford disability insurance.
There are some alternatives to critical life insurance you should consider. Disability insurance might be a better option because it covers a percentage of your salary for a longer period of time. Income protection insurance is another way to go if you cannot work because of an illness. Some life insurance policies also offer critical illness coverage.