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December 2016  Volume 9, Number 12        
 

long term care

What You Need to Know Before Purchasing Critical Illness Insurance

Advances in emergency treatments and medical care make it more likely you will survive a critical illness. The question is whether you can survive the cost of recuperation.

Critical illness insurance was created in the 1990s to help people pay for expenses associated with critical illness — expenses that often can lead to bankruptcy. A well-known 2009 study by Harvard University showed that 60 percent of all bankruptcies result from medical expenses and three-quarters of people filing for bankruptcy had health insurance.

How Critical Illness Insurance Helps

Critical illness insurance pays the insured person a single, tax-free payment when they receive a diagnosis of specified illnesses. Payments generally range from $5,000 to $1 million. Some policies will make multiple cash payments if you have more than one critical illness, such as cancer one year and a heart attack a few years later.

What people often forget is that someone who is ill frequently cannot work, so they need money to cover insurance, rent, the mortgage, credit card bills, school tuition, real estate taxes, food, utilities, car payments and experimental treatments.

Critical illness insurance benefits can also fill the gaps left by your major medical insurance, including deductibles and other out-of-pocket expenses. Although the Affordable Care Act capped out-of-pocket expenses at $6,850 for individuals and $13,700 for families (for 2016), do you have this much in easily accessible savings if you need it? If not, consider critical illness coverage! One way to determine how much insurance you might need is to multiply your monthly mortgage payment by 24 months.

What Qualifies as Critical Illness

Critical illness insurance policies cover three main types of illnesses — cancer, heart attacks and strokes. Some policies also cover heart transplants, coronary bypass surgery, angioplasty, kidney (renal) failure, major organ transplant and paralysis. Milliman, an actuarial consulting firm, estimates that 12 to 15 out of every 1,000 people over the age of 50 will experience one of the five conditions covered by critical illness insurance.

Different Types of Coverage

Your coverage options depend on the amount of coverage you need and the types of illnesses you are at risk for. For instance, some plans extend coverage to cover Parkinson’s disease, Alzheimer’s, amyotrophic lateral sclerosis, loss of sight and speech, and heart valve replacement.

Insurers Offer Coverage in Four Different Ways:

  • Simplified Issue Individual Protection – This basic coverage is affordable for most people, and many insurers will provide up to $50,000 in coverage without a medical exam.
  • Fully Underwritten Individual Plans – This type of coverage will pay up to $500,000, but the insurer will medically underwrite the plan, including requesting a complete medical history, blood and urine samples and possibly a medical exam.
  • Riders on Life Insurance Policies – You can add critical illness coverage to a life insurance policy with a policy rider (addition).
  • Employer-Sponsored Plans – Some employers might contribute to their employees’ critical illness insurance premiums, but most that offer coverage offer it on a voluntary basis. This means that the employee pays all premiums, but can pay through payroll deduction. Employer-sponsored plans generally don’t require medical underwriting. Unlike major medical insurance, critical illness plans can exclude coverage for individuals who have pre-existing conditions, such as diabetes.

Costs

Payments can be as low as $25 to $50 a month. A 42-year-old could pay $54 to $66 per month for a $50,000 policy. A 60-year-old could pay $210 per month for the same amount of coverage. As with most health coverages, costs can continue to increase as you get older. However, options vary from insurance to insurer, so it pays to talk to an independent insurance broker, who can access information from multiple carriers.

Points to Consider

Critical illness insurance is not for everyone. Many people who purchase this type of insurance stop making payments before they reach their high-risk years. Critical illness insurance only covers specific illnesses, and the condition must meet a very specific definition to be covered.

For some people, a disability policy would be a more appropriate choice, since it covers an individual’s lost income if they are unable to work. To discuss your situation and needs with an expert, please contact us.

 

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In this issue:

This Just In...

Life Insurance Companies’ Dilemma — To Insure or Not to Insure Marijuana Users

What You Need to Know Before Purchasing Critical Illness Insurance

Coverage for Pre-existing Conditions – When You Can’t Be Denied Health Insurance

Life Insurance as a Gift? It’s Not as Crazy as You Think

 


The information presented and conclusions within are based upon our best judgment and analysis. It is not guaranteed information and does not necessarily reflect all available data. Web addresses are current at time of publication but subject to change. SmartsPro Marketing and The Insurance 411 do not engage in the solicitation, sale or management of securities or investments, nor does it make any recommendations on securities or investments. This material may not be quoted or reproduced in any form without publisher’s permission. All rights reserved. ©2016 The Insurance 411. www.theinsurance411.com Tel. 877-762-7877.