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Understanding Critical Illness Insurance

Personal Finance
male patient, thankful he has critical illness insurance, talks with female health care professional

When you have a serious illness, life can get expensive fast. And recovery — not financial stress — should be your first priority. A critical illness policy could provide financial help for this difficult stretch, which might make life a little easier.

More than a quarter of U.S. adults face serious financial problems like excess debt or bankruptcy because of medical bills, according to National Public Radio — and this includes those with health insurance. Here, we will examine critical illness insurance and help you understand if it is the right choice for you.

What Is Critical Illness Insurance?

If you are diagnosed with a covered medical condition, a critical illness insurance policy would pay you a lump sum. This is not to be confused with a health care plan that would only pay your medical bills. Instead, you receive actual cash you could spend on anything you want — as there are no restrictions on how you spend it.

This money could be used to cover experimental medical treatments not covered by your health insurance, pay off your outstanding debts, replace your income if you cannot work — or even go on a dream vacation while you still can.

When you sign up for a policy, you pick the size of your benefit, which could be smaller (like $10,000) or larger (like $100,000). If you're diagnosed with a covered condition, your critical illness policy will mail you a check that matches the size of your policy. Your coverage ends after you receive this payment.

Some critical illness policies also make partial payments for other, less serious conditions that occur within a specified period of time following policy issue. For example, a policy might pay 25 percent of the benefit for a secondary condition. This means that if your total coverage is $100,000, you could receive $25,000 for a secondary condition and keep the remaining $75,000 of coverage in case you're diagnosed with a more serious critical illness in the future.

When Is It a Good Fit?

Critical illness coverage can be useful when you have high out-of-pocket expenses on your health insurance, such as with a high-deductible health plan. Critical illness insurance can also be helpful if you do not have a large emergency fund. You can make a small monthly payment for coverage and, in exchange, you'll receive financial assistance if you face a serious medical emergency.

Critical illness policies have a list of the specific conditions they will cover, as they do not cover every medical problem. These policies often cover conditions like heart attacks, life-threatening cancers, strokes and end-stage renal failure. Additionally, they would cover you if you went on a major organ transplant list. A policy might also partially cover a first coronary angioplasty, a malignant tumor and a first coronary artery bypass surgery.

Be sure to read your policy terms closely, as they'll explain what medical conditions are covered and whether there are any exceptions.

Any Special Considerations?

Critical illness insurance is typically easier to qualify for than disability or life insurance. If you cannot afford or do not qualify for traditional disability insurance, critical illness insurance can offer an alternative way to help cover your bills during a serious illness. Many plans use a simplified qualification process that only requires you to answer some questions about your medical history, such as "Have you ever had a heart attack?" If you pass all the questions, you qualify for the coverage. For these simplified plans, the insurance company will not go over your medical records or ask you to take a health exam. Critical illness plans typically have age restrictions as well.

Critical illness insurance is not a replacement for regular health insurance. While it provides extra money when you have a serious medical issue, you should not rely completely on this type of policy to pay all of your medical bills. It should be regarded as a supplement to your other insurance policies — like health, life and disability.

As medical technology continues to improve, your odds of surviving a critical illness are better than ever, but this good news can also mean more bills for you and your family. With critical illness insurance, you can help protect against the possibility of such a financial burden.

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Information provided is general and educational in nature. It is not intended to be, and should not be construed as, legal or tax advice. Western & Southern Financial Group and its member companies (“the Company”) does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. Consult an attorney or tax advisor regarding your specific legal or tax situation.