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What Does Critical Illness Insurance Cover?

Personal Finance
man in wheelchair asks caretaker daughter in a courtyard: what does critical illness insurance cover?

Life doesn't always work out as planned. You may know of an otherwise healthy person who had been diagnosed with cancer, or who had an unexpected heart attack or stroke. Unfortunately, we all know an unexpected illness isn't something you can control.

What you can control is how you prepare for these situations. An illness can be debilitating in both the physical and financial sense. However, you can help protect yourself and your loved ones by considering critical illness insurance. So, what does critical illness insurance cover — and how is it different?

How Is Critical Illness Coverage Different?

Before discussing what critical illness insurance covers, let's examine how it's different from typical health insurance. Critical illness insurance provides a benefit to help cover financial costs for a person dealing with a life-threatening illness. Health insurance may fully or partially cover medical costs — such as doctor's visits, treatment and medications — but it doesn't provide money to someone who can't work because they're critically ill.

If you're diagnosed with stage-four cancer, for instance, and have to take a leave of absence from your employer, health insurance may help you avoid burdensome medical debt. However, you'll still want to consider how to cover your mortgage, food, utilities and other monthly expenses.

For qualifying illnesses, critical illness insurance may fill this gap. It provides a lump-sum cash benefit you can use to pay these bills. It can also help you pay medical expenses like copays, deductibles, out-of-network doctors fees and prescriptions, which may not be covered by your health insurance. Having this benefit may help you if you become critically ill to maintain your quality of life without adding financial stress to your list of concerns — especially when your focus should be on getting healthy. That said, critical illness insurance does not remove the need for health insurance.

What Does Critical Illness Insurance Cover?

If you are considering a critical illness insurance policy, it is important to have a firm understanding of what it covers. Multiple types of illnesses are covered, including (but not necessarily limited to):

  • Major organ transplant
  • End-stage renal failure
  • Life-threatening cancer
  • Heart attack
  • Stroke

In some cases, a policy may pay a partial benefit for a specific illness or if you have to undergo certain kinds of treatment, such as coronary artery bypass surgery. Before you sign up for a policy, make sure you understand its benefits — what's covered and what isn't.

Most insurers offer critical illness insurance to adults between 18 and 65. This type of policy is generally less expensive for younger adults, and, in some cases, you might encounter reduced benefits after you turn 65. Your monthly premiums will vary according to the amount you choose (a higher benefit equals a higher premium), but a rule of thumb is to choose an amount that will cover at least six months of living expenses.

Why Should Someone Consider It?

If you're wondering whether you should consider critical illness insurance, it is worth taking into account that illness can impact you at any time — even if you don't have a family history of medical issues. Even if you have a disability income insurance policy, critical illness insurance may be valuable because of the lump-sum benefit. With disability income insurance, you only get a portion of your earnings when you're out of work because of an illness or disability — and many policies have up to a 90-day waiting period before you receive any benefits. With a critical illness policy, you get your benefits when you're diagnosed.

Another advantage of critical illness insurance is that most insurers will return 100 percent of the premiums you've paid, minus any benefit amount you've received, to your beneficiaries if you pass away (although this benefit is not available in all states). This means that even if you don't use the policy, your family may benefit from the money you put into it.

Critical illness insurance can potentially provide money to help replace lost income and pay monthly bills, debts or medical expenses your other insurance might not cover. It can be a valuable tool to help you maintain some level of quality of life during a difficult time.

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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.