What Is Critical Illness Insurance

In This Article

In times of illness or injury, many people tend to put health insurance on a high pedestal for various reasons. It provides immediate financial protection and offers greater comfort for policyholders and their families, knowing they are protected in worst-case scenarios.

However, there may come a time when health insurance is not enough, mainly if the policyholder is diagnosed with a severe health condition that will cost a fortune for treatment and recovery. That’s where critical illness insurance comes in.

Aside from assisting with medical expenses, these policies allow insured and their families to use lump-sum cash payouts for any purpose.

Learn more about critical illness insurance, including its definition, function, and cost.


Critical Illness Insurance: What Is It & Do I Need It?

What Is Critical Illness Insurance?

Critical illness insurance is a healthcare plan designed to financially protect the insured against life-threatening or chronic health conditions specified in the policy.

Remedies required for treating critical illnesses usually take a toll on any family. Therefore, such a policy serves as a monetary safety net for the insured and their families to fall back on when dealing with outrageous medical costs arising from long-term treatment plans.

Let’s say the policyholder is diagnosed with deadly cancer. Critical illness insurance will go into effect by paying out the predetermined amount of money to help pay for care deemed essential for such illness and cover a range of related costs, from medication and hospitalization to surgery and chemotherapy.

Applicants can opt for this coverage to supplement their existing primary life insurance, depending on their medical needs.


Types of Critical Illness Insurance Policies

doctor consulting and holding hand patient reassuring with care --Types-of-Critical-Illness-Insurance-Policies---as-body

Applicants can purchase critical illness insurance as a standalone or rider policy to supplement existing health plans.

There are different types of critical illness insurance policies available to meet a person’s needs and circumstances, including:

  • Standalone Policies: Applicants can independently purchase standalone policies to pay for treating specific critical illnesses.
  • Rider Policies: Rider policies provide supplementary coverage and benefits for a person’s critical illness diagnosis in addition to their primary coverage.
  • Return of Premium Policies: Aside from the lump-sum cash payment, these critical illness policies also return paid premiums if the insured doesn’t file a claim.
  • Group Policies: These policies are generally included in employee benefits packages.
  • Hospital Indemnity Policies: The insured will receive a fixed payment for each stay they are hospitalized for due to a major illness diagnosis.
  • Accelerated Death Benefit Policies: The policyholders can access a portion of their benefit early with these policies.


How Critical Illness Insurance Works

Like traditional health insurance, policyholders must pay predetermined monthly premiums in exchange for extra protection in the event of a critical illness diagnosis.

Critical illness insurance offers the policyholder and their families greater peace of mind, particularly if they are the sole breadwinner. In the worst-case scenarios, their insurer will pay cash to help cover medical expenses and related costs and replace lost income.

The insured and their families may put the money toward whatever needs and purposes they have, such as deductibles, premiums, groceries, rent, utility bills, mortgage payments, and childcare. In other words, while the main provider in the household can’t work due to extensive treatment plans, their families can rely on these extra monetary benefits to maintain their life in the best way possible.

After diagnosis, policyholders can only start filing claims against the policy until the specified waiting period on their policy is over. Insurance companies use waiting periods, such as 30, 60, or 90 days, to minimize the risk of false/fraudulent claims due to misdiagnosis.

It gives both the insured and their insurance provider more time to assess the severity of their condition and confirm the diagnosis, ensuring that the illness is critical rather than minor. Generally, the insured must survive the waiting period to receive the benefit, but the insurers typically pay the lump sum whether the insured lives or dies.


What Does Critical Illness Insurance Cover & Not Cover?

Does every critical illness insurance cover all kinds of severe and critical illnesses? Despite being variable from one provider to another, critical illness insurance typically cover the following conditions:


Keep in mind that critical illness insurance can exclude many chronic conditions, be sure to check for restrictions and exclusions to avoid conflict regarding the claim process that may delay payout.

The following conditions are not generally covered by critical illness insurance:

  • Diabetes
  • Asthma
  • AIDS or HIV
  • Congenital diseases
  • Pre-existing conditions
  • Self-inflicted injuries
  • Non-invasive cancer
  • Abnormally high blood pressure
  • Injuries caused by an act of war, public defense, or invasion
  • Injuries from risky activities (rock climbing, scuba diving, skydiving, etc.)
  • Injuries sustained in an illegal act (DUI or DWI)
  • Illnesses due to excessive consumption of alcohol


How Much Does Critical Illness Insurance Cost?

Like conventional insurance policies, the cost of critical illness insurance depends on a number of determining factors.

Compared to health insurance, critical illness insurance premiums are much more affordable. Most critical illness insurance policies cost under $100 per month and may start as low as $25. However, be aware that the premium rates can increase with age.

Since the coverage was born to protect a person during the period when they fall ill, health status is a significant indicator when assessing premium rates. In other words, young and healthy individuals with no pre-existing health conditions can expect to pay lower rates than those with a history of serious illnesses or long-term smokers.

The cost of critical illness insurance can be affected by the following factors:

  • Age
  • Gender
  • Health status
  • Smoking status
  • Coverage level
  • Location
  • Occupation
  • Out of pocket


Critical Illness Insurance: Pros & Cons

The advantages of critical illness insurance:

  • Premiums are relatively reasonable.
  • The policies are portable.
  • It offers greater peace of mind and financial protection for the insured and their families, allowing them to keep their current lifestyle on the right track following the diagnosis.
  • The cash benefits can be used for anything and whatever they like, not just medical expenses.


The disadvantages of critical illness insurance:

  • It doesn’t cover pre-existing medical conditions.
  • It may not cover 100% of medical expenses due to low coverage limits.
  • The premiums tend to increase with age.


Who Might Need Critical Illness Insurance?

True to its name, critical illness insurance offers financial security when a person is diagnosed with major health conditions. Consider opting for these policies if you fall into one or more of the listed below circumstances:

  • You don’t have emergency funds to cover treatment and recovery for an unexpected medical diagnosis.
  • Your employer-based benefit will not cover long periods of work absence due to illnesses.
  • You are the main provider, and your family depends on your income to support their life.
  • You are from a family with a history of certain critical illnesses like cancer or heart disease.


Many people often put off purchasing critical illness insurance until someone they know or in their family becomes seriously sick. Instead of waiting for the perfect time to get critical illness insurance, it is imperative to do so as soon as possible. Waiting can be costly because the older you are, the higher the premium rates, not to mention the hassle of the qualifying process.


If you have any questions about critical illness insurance, please contact us for a free consultation. 


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