What is Critical Illness Insurance and Who Needs it?

When you think of life insurance, you understand that it helps to protect your family financially if you pass away. But what about if you become critically ill, unable to work and earn income for a long period of time? That’s where critical illness insurance comes in. 

Critical illness insurance can help protect against unforeseen health circumstances. This specialized coverage can provide a crucial safety net at a time when you may be dealing with a serious medical situation and don’t need the additional stress of worrying about money. 

Learn more about what critical illness insurance is, how it works and what it costs, and if this type of coverage makes sense for you.

What is critical illness insurance?

Critical illness insurance is designed to provide you with a lump sum payment if you are diagnosed with a specified critical illness. Unlike traditional life insurance, which typically pays out upon the policyholder's death, critical illness insurance pays out while you are still alive, offering financial support during a challenging period

You might be wondering what counts as a “critical illness” or if the funds must be used on medical expenses. Here are some of key things to know about critical illness insurance:

• You get a lump sum payout: Critical illness insurance provides one payment if you are diagnosed with a covered condition. You’ll have to share documentation of your illness with your carrier, and then once approved, a payment will be initiated.
• Covered illnesses can vary by policy: While every insurance is different, most critical illness insurance plans cover a range of serious conditions including: cancer, heart attack, stroke, organ transplants, and more. It's important to carefully review the policy details so that you understand which illnesses are covered.
• There are no restrictions on use: The lump sum payout can be used for various purposes, including medical treatments not covered by health insurance, mortgage payments, daily living expenses, or even a vacation to aid in emotional recovery.

Who needs critical illness insurance?

Insurance products can benefit people in a variety of situations, and critical illness insurance is no different. To decide if it’s a good product for you, think about your financial situation, how much income you contribute into the household, and who relies on you for financial support. Here are some of the people for whom critical illness insurance is worth considering:

Individuals without adequate emergency savings: For those who may not have substantial savings (to cover at least 6 to 12 months of expenses), this insurance can serve as a vital financial buffer when the insured suffers from a critical illness.

Families with dependents: If you are responsible for supporting a family, critical illness insurance can offer peace of mind by providing financial support if you are unable to work due to a qualified illness, ensuring your loved ones are not burdened by additional financial stress.

Self-employed individuals: Entrepreneurs and self-employed individuals may lack the safety nets provided by traditional employee benefits. Critical illness insurance can be particularly valuable in maintaining financial stability while dealing with health challenges.

Supplementing traditional health insurance: Even with comprehensive health insurance, there are often gaps in coverage, such as deductibles, co-pays, and non-medical expenses. Critical illness insurance can help fill these gaps, ensuring that any additional healthcare costs are addressed.

Choosing the best critical illness insurance

When seeking the best critical illness insurance, you’ll want to look at several factors including what’s covered, the cost, and if the carrier is reputable. Here are some questions to ask when you’re researching critical illness insurance:

What is covered and what is excluded? It would be devastating to pay for critical illness insurance, get sick and then find out that you’re not eligible for a payout because of some loophole. So be sure that you understand the specific illnesses that are covered and read any exclusions mentioned in the policy carefully.

What is the payout structure? When crunching the numbers, you want to evaluate whether the lump sum payout would be sufficient for your needs. Also, confirm that there are no limitations on how the money can be used.

How much are the premiums, and can I afford it? Critical illness insurance will become another ongoing expense in your budget, so you want to make sure that you will be able to make those payments. 

What is the company’s reputation? Research and choose an insurance provider that has a history of fair dealings and prompt payouts. Read customer reviews online and see if there are any concerning complaints with the Better Business Bureau.

What if I have a preexisting condition?

Obtaining critical illness insurance with a preexisting condition like diabetes, heart disease, or cancer can be challenging, as insurance companies typically assess the risk associated with an applicant's health status. Insurance companies aim to manage risk, and individuals with preexisting conditions are often considered higher risk. As a result, they may either be denied coverage, offered coverage with exclusions related to the preexisting condition, or charged higher premiums to compensate for the increased risk.

In some cases, insurance companies may offer coverage but exclude the preexisting condition from the policy. This means that if the critical illness is related to the preexisting condition, it may not be covered. Additionally, some policies may have waiting periods before coverage for preexisting conditions takes effect.

Consulting with an insurance advisor or broker can help you navigate the complexities of obtaining coverage with a preexisting condition and assist in finding the most suitable options based on your individual circumstances.

Consider critical illness insurance as part of your overall financial plan

Critical illness insurance offers a valuable layer of protection in addition to a traditional term life insurance policy.

Life insurance can provide financial help to your beneficiaries to cover end-of-life expenses and maintain their lifestyle if you die, which is so important. But knowing that you will also have financial support in the face of an unexpected health challenge can help prevent financial strain during a challenging time.