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    Is Critical Illness Insurance Worth It?

    7 mins

    In the United States, many consumers have never heard of critical illness insurance. Other consumers may have heard about it under other names, such as “catastrophic illness insurance” or “dread disease plans.”

    Knowing about critical illness insurance could save you from extraordinary medical costs you could face otherwise if applicable to your condition. This article will look into whether critical illness insurance is worth it or right for you.

    What Is Critical Illness Insurance?

    Surprisingly, critical illness insurance was not developed by the insurance industry. Dr. Marius Barnard, part of the surgical team that performed the first human-to-human heart transplant, created critical illness insurance in 1983.

    U.S. health insurers quickly adopted plans soon after as coverage for rising healthcare costs became a universal concern. 

    Critical illness insurance can be thought of as a long-term insurance policy. The policyholder is provided with a large lump sum payment if diagnosed with a critical illness (defined below). 

    How Do Critical Illness Insurance Plans Differ from Standard Plans?

    Is critical illness insurance worth it if you’re already insured? The insurance plan is typically seen as a supplementary, separate from a standard health insurance plan. These plans are more analogous to a life insurance policy than standard health insurance in some respects.

    Unlike standard health insurance, critical illness insurance plans are not designed for patients regularly seeing their doctor for preventative measures and checkups; they are designed for catastrophic issues or medical emergencies. Typically, critical illness insurance does not have required deductibles or copayments.

    You could potentially realize year-over-year savings, as the average deductible cost for health care plans is $1,655. Plan holders are still required to pay premiums, but typically these costs are a standard amount determined at enrollment.

    Understanding the fundamental difference between critical illness insurance plans and standard plans is crucial. Your payment for critical illness insurance plans only applies to the specific listed conditions in your plan. 

    You will still need to find a way to pay for standard coverage for any other medical condition. For this reason, critical illness plans are typically purchased in addition to a standard health care plan.

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    What Medical Conditions Are Typically Covered?

    The specific medical conditions covered by critical illness insurance will vary from plan to plan. If considering purchasing this insurance, make sure to confirm the conditions you seek coverage for are listed in the terms of your plan.

    Critical illness insurance typically covers illnesses that are forever life-altering. Some conditions could require costly experimental treatments. Others could affect your ability to work. The plan is designed to help compensate for these costs.

    Here is a list of conditions that you may find in a critical illness insurance plan:

    • Cancer

    • Heart attack

    • Stroke

    • Coronary bypass

    • Kidney failure

    • Organ transplant

    • Multiple sclerosis

    • Paralysis

    • Alzheimer’s disease

    • Dementia

    • Arthritis

    • Major organ transplant

    • Blindness

    • Deafness

    • Brain damage

    The terms of these policies will typically define the extent to which the conditions will trigger a payout and for what amount. Once a payout is made, the policy is considered complete.

    How Much Does Critical Illness Insurance Typically Cost?

    Like traditional health insurance plans, critical insurance requires a premium to be paid each month. Various factors can affect the amount of the premium.

    One factor is who is sponsoring the health plan. Critical illness insurance can be offered through an employer like standard health care plans. An employer-sponsored health plan could potentially be offered at a subsidized amount.

    Another factor to consider is the coverage of the plan. Since critical insurance plans offer a one-time, lump-sum payment, most insurers will offer a range of coverage options depending on the extent of the illnesses covered.

    Insurers will typically account for your likelihood of developing a condition by offering a questionnaire or performing a health screening for the underwriter to assess your health risks. Common factors often asked for are:

    • Age

    • Benefit amount selected

    • Number of conditions requested to be covered

    • Whether the coverage includes dependents

    • Whether you are a smoker or not

    • Whether you have a standard health plan for preventative maintenance

    • Other general health risk factors

    Each of these factors can affect the price. 

    How Can I Get Critical Illness Insurance?

    If you are interested in critical illness insurance, there are various ways in which you might be able to sign up for a plan:

    Employer-Sponsored Critical Illness Insurance Plans

    As mentioned previously, some employers offer an employer-sponsored critical illness insurance program. While the level of financial subsidy may vary, this can give you access to a discounted group rate.

    The Society for Human Resource Management says that 45% of employers with 500 or more workers offered critical illness insurance in 2016. The demand could be higher since the COVID-19 pandemic.

    Professional Association Sponsored Plans

    Various professional associations provide a critical illness insurance plan with standard coverage. This option could be appropriate if there is a specific condition that you are seeking basic coverage for to complement your existing insurance.

    The American Association for Critical Illness Insurance connects consumers with various plans based on gender, age, and tobacco use. They can provide an instant quote for a critical illness insurance plan covering only cancers.

    The premium for the quote varies depending on the associated risk factors chosen. In general, the algorithm seems to suggest that the plan will offer a lower premium for males, younger people, and non-smokers.

    The American Dental Association offers consumers a $50,000 lump sum payment in the event of a diagnosis with a critical illness. The plan covers 17 critical illnesses, including AIDS, loss of speech, and amputation.

    Notably, the plan offers coverage if you or a loved one are diagnosed with a critical illness. The plan guarantees $5,000 and requires medical underwriting for expenses of $10,000 and up. Members can also apply for dependent children coverage.

    Effect of the Affordable Care Act

    Critical illness insurance plans do not qualify under the Affordable Care Act (ACA) as meeting the requirement for individual insurance coverage. The plans are considered an “excepted benefit” under the ACA.

    Because these plans do not qualify, they are not covered by the regulations that apply to plans under the ACA. Insurers are not required to provide the essential health benefits under these plans. 

    Additionally, insurers can use information from medical underwriting to deny applications for these plans. Therefore, individuals can be denied coverage for pre-existing conditions.

    Lastly, critical illness plans are not a plan offered by the ACA, and therefore, they are not available to purchase on individual state health exchanges.

    Should I Get Critical Illness Insurance?

    Is critical illness coverage worth it? Keep in mind that all health insurance plans are a gamble, but critical illness insurance is particularly risky given the limited coverage of illnesses.

    Certain conditions may be debilitating but not particular enough to fall under critical illness plans. For example, there has been a rise in litigation surrounding the coverage of these plans since the COVID-19 pandemic. 

    Also, some plans may not provide an option to pass benefits to a designated beneficiary in the case of the covered owner passing away.

    However, critical illness insurance can end up being a wise investment if the amount you end up receiving is much greater than what you have paid in, especially if you start with a smaller premium amount.

    Some conditions to consider are:

    • Your family history and risk of suffering a critical illness

    • The likelihood of a family member facing critical illness

    • Your ability to work to provide for your family if forced to compensate for a critical illness

    • Your financial wherewithal in the event of medical debt 

    If possible, you can use these factors to adjust your plan for more limited coverage.

    Brent Roberts
    Brent Roberts
    Passionate about making benefits and insurance easy to grasp.
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