Critical Illness Insurance : What is It?

Critical Illness Insurance

What Is Critical Illness Insurance?

Critical illness insurance or critical care insurance is a type of health plan that compensates policyholders with a lump sum amount if they get diagnosed with a severe illness. A critical illness plan is different from a normal health insurance plan, though it can be purchased from the same insurance carriers that offer normal health insurance plan, or even some employers offer critical illness plans to their employees. The coverage under critical illness insurance may vary from plan to plan, as some plans offer very limited coverage and may cover a handful of critical illnesses whereas other critical illnesses cover a range of conditions. The type of illnesses covered in a critical illness plan are listed in the insurance policy. Even the lump sum amount received by the policyholders in some cases depends on the illness. The policyholder can use the received amount to cover their health care cost or personal costs that they have incurred due to their illness.

How Critical Illness Insurance Works?

Just like any other health insurance plan, critical illness insurance plans also require members to pay a monthly premium in exchange for coverage if they become ill. Critical illness plans offer coverage ranging from $5,000 to $500,000 lump sum payments that usually depend upon the critical illness plan and the illnesses it covers. The monthly premium of the plans depends on the coverage offered along with the following factors:

  • Age of the policyholders
  • The general health of the policyholders and personal risk factors
  • The number of people insured in a plan
  • Numbers of illnesses included in the plan
  • Insured smoking or tobacco using habit
  • If the insured has purchased a critical illness plan as a stand-alone plan or as a supplemental plan
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Critical illness plans come with the following information:

  • Definitions of different diseases and the conditions that are covered
  • The time when the policyholders will qualify for a payout
  • Whether there is a waiting period before receiving the benefits
  • The percentage of total benefit that will be paid
  • If the illness occurs again then what will happen



On receiving the benefits from their critical illness plans, policyholders can use the money to cover their personal or healthcare costs such as:

  • In-home care
  • Living expenses of the recovery period
  • Costs of the treatment that are not covered
  • Travel to and from hospitals or clinics
  • Deductibles and co-pays
  • Childcare expenses

What Does Critical Illness Insurance Cover?

The basic critical illness plans provide coverage for a disease like heart attack, cancer, and stroke that are some of the common critical illnesses and a prime cause of death all over the world. However, the comprehensive critical illness plans cover severe illnesses such as:

  • Alzheimer’s disease
  • Organ transplants
  • Angioplasty
  • Multiple sclerosis
  • Kidney failure
  • Paralysis
  • Cystic fibrosis

Unlike the major health insurance plans that directly pay the cost of medical procedures to the hospitals or doctors, critical illness plans pay cash directly to the policyholders. Policyholders can use the received money to pay for their healthcare costs.

Factors to Consider before Purchasing a Critical Illness Plan

Health insurance is a hedge against future risk as well as an investment for peace of mind. However, before purchasing a critical health insurance plan, individuals should consider the following:

  • Their risk of developing a critical illness in the next few years.
  • If anyone in the family is at risk of developing a critical illness
  • Medical services covered under their regular health insurance plan
  • Their financial condition, if they are unable to work
  • The preparedness for the unexpected expenses
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Individuals might think to invest in a less comprehensive or a smaller affordable plan, but they need to remember that the payout will be not enough to cover their necessary expenses in case if they become ill and are unable to work. No doubt a comprehensive plan will be expensive initially but will include more illnesses and provide better coverage on becoming ill.

Cost and Benefit of Critical Care Plans

If an individual is having a $5000 critical health plan, then he/she will need to pay $11 a month or $132 a year. In a three-year duration, an individual will spend a total of $396 on his/her critical plan. Unfortunately, after three years if the person gets diagnosed with a critical illness, then he/she will receive a benefit payout of $5000, or $4,604 after deducting the premium amount of three years. Similarly, if an individual is having a $60,000 critical illness plan, then he/she will pay $130 a month, or $1,560 in a year. Thus, in a three years time-frame, the person will pay a total of $4,680 in the premium of the plan. After three years if the person gets diagnosed with a critical illness covered by the plan, then he/she will receive a benefit payout of $60,000, or $55,320 after subtracting the premium amount.

Thus while purchasing a critical illness plan, individuals should not only consider their financial condition but should also understand their risk. Individuals need to discuss the following things with their doctors:

  • Age, as with growing age risk of heart diseases and cancer increases.
  • Family history of certain diseases
  • Risk factors like drinking or smoking
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Depending upon their financial conditions and requirements individuals should choose the coverage. Besides individuals should also weigh the cost of the plan, as well as their out-of-pocket costs for any critical illness, and should check their financial condition to judge about the costs which they can pay without any insurance. If individuals think that they cannot afford the expense of a critical illness, then purchasing a critical illness plan will be a smart and lucrative investment for them.

Alternatives to Critical Illness Insurance

There are other forms of supplemental insurance also and it is not essential for individuals to think just of critical illness plan. A critical illness plan is certainly not the best choice for everyone and there are some other alternatives too that individuals can consider. Individuals who are in their early 20s and 30s and possess good health with no risk factors may not require a critical illness plan at all. Individuals having comprehensive health insurance plans can also skip the supplemental insurance plan. However, some other alternatives to a critical illness plan are:

Cancer-only Insurance

More than 30% of the U.S. populations are affected by cancer compared to other critical illnesses. Health insurance carriers offering critical illness insurance plans also offer a limited cancer-only plan. This plan will be a good choice for individuals who have a high risk of cancer. Some of the critical illness plans also provide coverage for accident insurance, life insurance, or disability insurance. This type of plan may prove a good option for individuals who wish to maximize insurance coverage without having to pay for several plans.

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