Critical Illness Insurance Fills a Benefits Gap

Almost a third of cancer patients have healthcare costs totaling 10 percent or more of their family income, and roughly one in nine have costs that exceed 20 percent of family income. As a result, 11 percent of individuals with cancer report being unable to pay for food or other necessities while paying for cancer treatment.

 

As medical technologies and treatments improve, more people are surviving once fatal forms of cancer, heart disease and other conditions. Battling serious illness costs money, though. Even if you have medical insurance, your plan won’t cover the entire bill.

In a recent Kaiser Family Foundation poll, 51 percent of insurance agents reported the most common health plan deductible is $2,000 or more, compared to 20 percent who said the same two years ago. In the individual health insurance market, deductibles can be even higher—$4,000 or more.

In addition to deductibles, health plans have copayments, coinsurance and exclusions—all of which add to your out-of-pocket costs. Critical illness insurance can help you pay some of these costs, along with the indirect costs of a major illness. A critical illness policy pays a lump sum benefit if you are diagnosed with a serious health condition, such as cancer, covered by the policy. You can use policy benefits for any expense: co-payments for doctor/hospital bills, travel costs, experimental treatments, or even to replace the wages of a family member leaving work to provide care.

Illnesses covered under critical illness policies vary, but most cover cancer, heart attack and stroke. Many cover a far longer list of ailments, including Alzheimer’s, paralysis, coma, multiple sclerosis and loss of hearing.  Payouts for critical illness policies typically average around $25,000, with premiums costing about $300 to $500 annually, depending on your age, gender, health and location. Higher-end policies covering a dozen or more conditions generally pay benefits of more than $100,000 and cost about $1,500 to $2,000 a year.

Eligibility and enrollment. To buy critical illness coverage, you must complete a detailed medical questionnaire. An insurer will likely deny coverage if you already have a covered illness or if several blood relatives have had one. Policies paying a maximum benefit of less than $100,000 often don’t require a medical exam. Some plans require waiting periods of 30 days or even several months before coverage begins. Others stop paying benefits after a fixed period of two or three years

Limitations. Many insurers will not issue new policies to individuals older than age 59 or 65—cutoffs vary by insurer. After the cut-off age, many policies reduce the lump-sum payout by half, but don’t reduce the premiums. In other words, if a policyholder has a stroke at age 75, she might get only half the benefit.

Critical illness policies limit your total benefits to a fixed amount. Limits usually range from a minimum of $10,000 to a maximum of $500,000, although some insurers will write policies with up to $1 million in coverage.

Some financial advisors and consumer advocates say critical illness coverage is unnecessary. They believe consumers should spend the premium dollars on savings, investments or even fitness programs to help reduce the risk of illness. However, if you lack the discipline to keep thousands of dollars in reserve, critical illness insurance can play an important role in filling coverage gaps.

Critical illness insurance offers features other types of medical insurance lack. Most importantly, benefits are flexible—instead of going directly to medical providers, you can use them however you choose. You can use a critical illness policy to supplement disability coverage as well as your medical coverage. Business owners who suffer a critical illness can use policy benefits to supplement any lost income or operating expenses—they can even help cover the lost income of a person who acts as your caretaker during your illness. Because you don’t have to prove disability, only illness, to collect benefits, critical illness insurance may offer more flexible coverage than many disability policies. For more information, please contact us.