Critical Illness Insurance

According to figures from the American Heart Association for 2024, a heart attack occurs every 40 seconds in the United States.

This amount may not be as scary as the expense of a heart attack, which can reach into the tens of thousands. According to a 2017 study published in Circulation, a medical magazine by the American Heart Association, the median cost of hospital care for uninsured patients after a heart attack is $53,384. When you factor in rising medical care costs and inflation, the figure is going to be substantially higher.

If you had a heart attack tomorrow, how would you pay for it?”

Critical illness insurance is marketed as one approach to address that issue.

What is critical illness insurance?

Many Americans have been surprised to learn that their medical insurance will not cover all bills. Consider critical illness insurance to fill the gap between your primary health insurance and out-of-pocket expenses. It is intended to make your recovery more financially manageable and to cover any costs that may arise as a result of becoming ill.

With critical illness insurance, you’ll get a cash payout if you suffer a serious illness. The list of insured ailments varies, but heart attacks, strokes, and cancer are the most prevalent. The coverage normally kicks in if you have organ or kidney failure.

The money can be spent as you like. You might use it for day-to-day expenses, deductibles, copays, and procedures. Some people spend their money on rehabilitation, in-home care, and lifestyle expenses to become healthy, such as smoking cessation programs. You might prioritize child care or cleaning services to allow yourself to rest. 

How critical illness insurance fits into a financial plan

Critical illness insurance might keep you from depleting your resources to cover your health insurance deductible. For example, if your plan has a $10,000 deductible, you may get a $10,000 critical sickness policy to cover the shortfall.

One of the primary selling aspects is that there is usually no waiting period. This distinguishes it from long-term disability insurance, which typically requires a three-month waiting period.

However, critical illness insurance has its restrictions. It will not pay out if your disease is not serious, and it does not cover pre-existing conditions, so you must apply for coverage before experiencing a health problem.

The cost of critical illness insurance

As you get older, your critical illness insurance premiums rise. It is a good idea to apply for coverage as soon as you realize you need it.

Here are Aflac’s sample monthly premiums for a $10,000 critical illness insurance, with and without additional cancer coverage.

The top prospects for critical illness insurance

Critical illness insurance can be a cost-effective form of income protection for persons who are not qualified for disability insurance and may struggle to make ends meet if they become ill. This may include stay-at-home parents, freelancers or part-time workers, as well as persons who do not have traditional access to disability insurance.

Critical illness insurance may also be beneficial for persons with a family history of some major disorders, such as heart disease.

For everyone else, the money could be better spent elsewhere, such as increasing life insurance coverage. 

Opting for a rider

If you’re looking for term life insurance, several providers offer a critical illness rider for free. Permanent policies may allow you to add a life insurance rider for an additional fee. This add-on is likely to cost less than purchasing a separate critical illness policy.

A critical illness rider, like standalone insurance, is activated when you are diagnosed with a qualifying sickness, and you can spend the money as you like. The amount of money you’ll get is specified in your policy documentation and is paid tax-free.

What’s the downside? If you die while your life insurance policy is still in effect, your insurer will deduct that sum from the final payment to your beneficiaries.

Let’s imagine you have a $500,000 life insurance policy with a $50,000 critical illness rider. If you have a covered sickness, you can receive a payment for $50,000, leaving $450,000 for your life insurance beneficiaries when you die. If you are never diagnosed with a serious illness, your beneficiaries will receive the full life insurance death benefit.

Keep in mind that you can only add a critical illness rider to new policies, not existing ones.

Whether you need one depends on your health insurance or the circumstance you’d be in if you were hit with unexpected medical expenditures.

For example, if you have a high deductible on your health insurance, adding a critical illness rider to a permanent life insurance policy may be beneficial. This group may include self-employed individuals, who have additional protection in the event of a stroke, cancer diagnosis, or other catastrophic health condition.