What is Critical Illness Insurance?

Critical Illness Insurance Definition

Critical illness insurance pays a benefit to the policyholder in a lump sum if he or she becomes seriously ill with a disease such as cancer, blindness, Alzheimer’s or multiple sclerosis, or if he or she has a stroke, heart attack, requires an organ transplant, becomes paralyzed or develops kidney failure. Critical illness insurance provides a one-time payout if you are diagnosed with a condition covered by the policy; it does not provide ongoing benefits like health insurance or disability insurance. Some critical illness policies will not pay out if the condition is not severe enough. For example, a policy may cover a late-stage cancer but not a treatable, early stage one.

You must purchase critical illness insurance while you are healthy; it does not cover pre-existing conditions.

Example

Piper Chapman doesn’t think her health insurance and disability insurance will provide as much coverage as she would want if he became critically ill, and she doesn’t want to experience the stress of financial problems in such a situation. One thing she particularly likes is that the policy pays out after just 30 days, versus 120 days for her disability insurance, and it gives her a lump sum instead of a monthly benefit. Her employer doesn’t offer critical illness insurance, but she can purchase an individual policy.

Policy cost depends on gender, age and health; as a healthy, 40-year-old female, she gets a policy for about $100 a month. If Piper wanted to spend less, she might choose a lower coverage amount or get a policy that only covers the most common claims (heart attack, stroke and cancer).

Have more questions? Contact Us for more details on Critical Illness Insurance.

Tips From First Foundation

Most people do not need critical illness insurance because their health insurance policies will pay for their treatment if they become seriously ill, their disability insurance will cover their loss of income if they can’t work because of severe illness or disability, and their life insurance will provide cash for loved ones if they pass away. However, critical illness insurance can cover expenses that these policies do not, such as travel to receive medical treatments, in-home care and child care.

Some plans refund premiums to a beneficiary if the policyholder dies without making a claim, or refund premiums to the policyholder if the term expires without their making a claim. If you fully recover from the illness that caused the policy to pay out, you get to keep the money. After all, you met the policy conditions, and you may have used some or all of it in treating your illness.

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Last updated Oct 29, 2018