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What is crit­i­cal ill­ness insur­ance and how does it work? 

You probably know someone who’s been diagnosed with a serious illness. Heart attacks, strokes and cancer are some of the most common, but they’re among a whole host of other maladies that can drastically alter your life — and your finances. It’s why thousands are turning to crowdfunding websites like GoFundMe for help, but only 1 in 10 are meeting their fundraising goal.

The good news? You’re more likely than ever to recover from a critical illness. Your savings, on the other hand, may take years to rebound. That’s where critical illness insurance comes in.

Watch this short video to learn how critical illness insurance works.

Read on to see how critical illness insurance might be right for you.

  • What is critical illness insurance?
  • How does critical illness insurance work?
  • What does critical illness insurance cover?
  • Is critical illness insurance worth it?
  • How much does critical illness insurance cost?
  • How to get the best critical illness policy.

What is critical illness insurance?

Critical Illness insurance, also known as heart attack insurance, cancer insurance, stroke insurance or dread disease insurance, is a product designed to help lessen the financial impact of a serious disease. A South African surgeon invented it when he saw his patients struggling with their finances after they recovered from major illnesses, making it the only insurance product that wasn’t created by an insurance company.

Although not every disease is covered, a critical illness insurance policy will cover many of the most common and financially disruptive conditions. It protects against serious illnesses and unexpected medical procedures by giving you the money you need for anything – making up for lost wages, funding extra time off work, covering medical payments and even traveling for treatment. That way you can focus on getting well.

How does critical illness insurance work?

Though some critical illnesses are common, medical advances have enabled those diagnosed with a serious illness to live longer than ever before. Survival rates have increased but the bills associated with treatment can be crippling — especially with rising healthcare costs and the increasing popularity of high-deductible health plans.

Critical illness policies work by paying a lump-sum benefit amount following the diagnosis of a covered condition. After diagnosis, the covered individual (you or a loved one) submits a claim for benefits which are then paid directly to them.

You can use the benefit from a critical illness policy to cover medical expenses, your mortgage, utility payments, or even grocery bills. If there’s an experimental treatment that could help, a critical illness policy can help give you the means to pursue it. If you need to travel for procedures or physician visits, a critical illness policy can help pay for your transportation and lodging. When facing a life-threatening illness or condition, critical illness insurance helps give you the freedom to focus solely on recovery.

What does critical illness insurance cover?

Critical illness insurance covers a variety of the most common serious illnesses or conditions. Making a claim for chest pains or a stomachache won’t trigger payment, but a diagnosis of one of the following conditions will likely qualify (depending on your policy):

  • Heart attack
  • Coronary artery bypass surgery
  • Angioplasty
  • Stroke
  • Invasive or non-invasive cancer
  • Kidney (renal) failure
  • Major organ transplant
  • Advanced Alzheimer’s disease
  • Paralysis
  • Coma

Many critical illness insurance policies also include a selection of riders to complement or bolster existing coverage. If you’re unfamiliar, a rider is an additional option, term or condition you may select to enhance your policy. By adding a rider, you can extend coverage to your spouse or children, or expand it to include additional critical illnesses. You can attach a Return of Premium rider to your policy to have a portion of your premiums repaid to your loved ones if you die from something other than a covered critical illness.

If you’re worried about more diseases or conditions than those listed above, some policies allow you to purchase coverage for additional critical illnesses to create the best protection possible. Additional critical illnesses covered under some policies might include:

  • Advanced ALS
  • Advanced Parkinson’s Disease
  • Loss of Sight
  • Loss of Hearing
  • Benign Brain Tumor
  • Severe Burns

Is critical illness insurance worth it?

To determine if critical illness insurance is worth it for you, it’s important to know the risks of receiving a critical illness diagnosis in your lifetime, as well as the medical cost of critical illness.

The risk of diagnosis

In 2018, nearly 1.8 million Americans received a cancer diagnosis — but only a third of that number died from the disease. Heart attacks are also common, with 735,000 occurring annually in the United States, and there are 800,000 strokes each year — the number one cause of adult disability.

The odds of survival

Those numbers are scary, and nobody wants to imagine him or herself in a situation where they’re facing a deadly disease. There is a silver lining, however — survival rates are increasing rapidly for most critical illnesses. There were an estimated 15.5 million cancer survivors in the United States as of 2016, a number that the National Cancer Institute expects will increase to 20.3 million by 2026. It’s more likely than ever that a cancer diagnosis isn’t a death sentence, but that doesn’t make such a diagnosis less of a financial burden.

The financial burden of critical illness

In fact, 40 percent of Americans incurred medical debt in 2014—many as a result of a critical illness. The current out-of-pocket maximum for a family is $15,800, a fraction of the total cost for cancer treatment. You might incur this cost for multiple years while you or a loved one battles cancer, leaving you with little in the way of funding for everything else you need. On top of that, transportation to and from treatment, lost time at work and various comforts to make the treatment more pleasant all add to the financial cost of a cancer diagnosis. It’s a similar story for other critical illnesses, and one with which too many Americans are familiar.

Consider the full price of getting sick. Even a $30,000 policy can make a big difference to a family facing a critical illness.

How much does critical illness insurance cost?

With a benefit amount of $30,000 on a critical illness insurance policy, you can help eliminate two years of medical expenses and use your remaining income to make yourself comfortable during treatment. A policy like that could cost less than a dollar a day. Higher benefit amounts can further reduce the financial burden posed by a critical illness. This small payment can go further than even large monthly contributions to a Health Savings Account (HSA).

How to get the best critical illness insurance policy.

If you think a critical illness policy might be right for you, it’s time to go about finding the best possible coverage. Unlike many other types of insurance, there’s no easy formula to find out how much you need — each diagnosis will come with its own challenges and costs, and no two circumstances are alike.

What you should consider are the “knowns”—for instance, how much money do you have in your savings? How much is the deductible on your medical insurance? At the very least, you should have enough critical illness insurance to cover your out-of-pocket exposure – that is, your deductible and coinsurance up to your plan’s maximum. A larger policy might cover several years of out-of-pocket costs.

Since you can use the benefit from a critical illness policy to pay for whatever you want, you might want to factor in the costs of transportation or experimental treatments into your coverage. The first step to finding the best critical illness policy is to figure out what you’ll need the money for so you can figure out how much coverage you’ll need. For reference, typical coverage amounts range from 10 - 50 thousand dollars.

Once you’ve figured out how much coverage you need, you’ll need to find out how much it might cost — it may cost less than you’d think! You can get a critical illness insurance quote from Assurity as a baseline for how much your insurance may cost.

With all this knowledge in hand, it’s time for the final step — getting a critical illness insurance policy. You might be able to get coverage through your employer simply by talking to your HR benefits representative. If your employer doesn’t offer critical illness insurance, speak to your local insurance professional. They’re a knowledgeable resource you can rely on, and will know many of the best critical illness products on the market. You can also check out Assurity’s Critical Illness Insurance for more information, resources and examples.