Do I really need Critical Illness Insurance?
Critical Illness Insurance - Answers To The Most Frequently Asked Questions
We provide answers to the most frequently asked questions about critical illness insurance protection. It is important to understand that States regulate policies and definitions and coverages can vary from one insurer to another. For that reason, it is important for you to work with a knowledgeable professional or organization. Ask questions and to always read your policy.
Click On Any Of The Following Questions
- What Exactly Is A Critical Illness ?
- Is Critical Illness Insurance New ?
- Is This The Same As "Cancer Insurance" ?
- Why Do I Need Critical Illness Insurance ?
- How Does Critical Illness Insurance Work ?
- How Much Does Critical Illness Insurance Cost ?
- How Much Critical Illness Insurance Can I Buy ?
- Are The Rates Guaranteed ?
- Is Any Of The Cost Tax Deductible ?
- Why Does My Current Health Matter ?
- What If I Am Not In Perfect Health ?
- What If My Health Changes ?
- What Is The "Survival Period" ?
- What If I Die Within The Survival Period ?
- What If I Have Health Insurance ?
- What If I Have Disability Insurance Coverage Through Work ?
What Exactly Is A Critical Illness ?
The three primary critical illnesses that affect Americans are cancer, heart attack and stroke.
That said, today available policies may also cover the following: coronary artery (bypass) surgery, kidney failure, major organ transplant, paralysis, blindness (loss of sight), multiple sclerosis, heart valve replacement, surgery of the aorta.
Is Critical Illness Insurance New ?
Critical illness insurance policies were introduced in the United States in the mid 1990s. Today, it is estimated that some 600,000 Americans have some critical illness insurance protection. The industry has some $11.5 billion worth of in-force benefits. 1
Critical illness protection is available in a number of ways. There are individual policies that can be purchased online or through your own insurance or financial professional. Protection may be available through your employer. And, some life insurance policies now offer a critical illness optional rider. The answers below generally pertain to individual critical illness insurance policies.
Is This The Same As "Cancer Insurance" ?
No. Cancer insurance is still made available and while cancer affects millions of Americans, it is just one medical condition. Because cancer insurance is limited to just the one condition, it typically will cost less than critical illness insurance which includes and pays benefits for multiple conditions that may occur.
Why Do I Need Critical Illness Insurance ?
The simple answer is because you are going to survive a critical illness -- a heart attack, cancer or a stroke. But survival comes with a steep cost.
Today Americans experience one of those good news - bad news situations.
The good news: Advances in the medical care and emergency care allow more people than ever to survive catastrophic illnesses. The chances of contracting and surviving a critical illness prior to retirement are reasonably high.
The bad news: Here's the hard fact. Medical expenses are responsible for 60 percent of all U.S. bankruptcies in 2007 and 78 percent of these individuals had health insurance. 2
What causes the financial downfall for millions of Americans each year? Too many expenses � too little cash or insurance to pay. No matter how good your health insurance is, there are deductibles, co-insurance payments, prescriptions that are no longer covered (and some cost hundreds of dollars each month). Maybe you'll want to seek alternative treatments or fly to get care at some out-of-state center. While you are recovering, you're not working. But that doesn't stop the need to pay your mortgage, utility bills, car payments -- even your health insurance premiums.
How Does Critical Illness Insurance Work ?
Critical illness insurance pays a lump-sum, tax-free, cash payment if you are diagnosed with and satisfy the survival period for any one of the critical illnesses covered by your policy. It's just that simple. One check for the full amount.
Some policies will even pay you multiple times. You are diagnosed with cancer � you get paid. Two years later, you have a heart attack � you get paid again (generally a reduced rate).
How Much Does Critical Illness Insurance Cost ?
The cost for protection is based on your age when you apply, your health when you apply, your sex and whether you use tobacco products. To see examples of costs, use the Cost Calculator. For amounts generally up to between $50,000 and $70,000 insurers will use simplified health underwriting and simple rate tables to calculate cost.
How Much Critical Illness Insurance Can I Buy ?
You can buy as little as $5,000 to as much as $1 million. Most individual policies range from $10,000 to $50,000. Read out article on how to decide how much coverage you may need.
Are The Rates Guaranteed ?
This will vary from one insurer to the next, but the general rule of thumb is that rates are guaranteed for a period of time (say three to five years). After that period, an insurer reserves the right to apply to your State for a rate increase. They must apply for an entire block of business (not just your policy). And, they must demonstrate to the State Department of Insurance why such a rate increase is necessary (typically more claims than expected).
Is Any Of The Cost Tax Deductible ?
Critical illness insurance is considered to be an accident and sickness (health) policy. For an individual purchasing coverage for themselves, the premiums are not tax deductible but the benefits are received tax free.
Costs could be tax deductible when a business purchases critical illness insurance, say for a key executive. For example, a business could purchase coverage to replace lost income should the owner be hit with a critical illness. If the business is the beneficiary of the policy then premium is tax deductible and benefit is taxable (to the business). Speak to your tax advisor.
Why Does My Current Health Matter ?
Simply stated, while no one can predict your individual chance of having a heart attack, a stroke or cancer it is clear that your health is a proven way to predict the chances. Your height and weight certainly matter. And, certainly the use of tobacco products significantly increases your chances of incurring a critical illness.
So, those in better health (and non smokers) pay lower rates. It's similar to good driver discounts that car insurance companies make available.
What If I Am Not In Perfect Health ?
First, check with your employer. They may offer a form of critical illness insurance protection available on a "guaranteed issue basis" which simply means everyone can qualify. The insurance company takes this into account when setting rates. If you are in good health, you should definitely look into an employer-offered plan. But you might find you can obtain better coverage for less cost on an individual basis because of your good health status. It pays to check.
What If I My Health Changes - Can My Policy Be Cancelled ?
Policies are (generally) guaranteed renewable. We say generally because most are. But this is a question you must ask before purchasing. Guaranteed renewable means your policy cannot be cancelled if and when your health changes.
What Is The "Survival Period" ?
This is determined by each insurance company, so it is important to ask your insurance professional about the specific policy they are recommending. That said, the survival period is the number of days you must survive, following the diagnosis of a covered critical illness, before a benefit is payable. A survival period applies to all covered conditions. There can be a difference in the number of days that need to pass before a person is considered to be "critically ill" according to the definition in the policy.
What If I Die Within The "Survival Period" ?
Generally, your heirs or estate will not receive a critical illness insurance payment. Many policies offer a Return of Premium option that would pay a return of premium paid on death benefit. The return of premium benefit is equal to the sum of all premiums paid for the policy. If death is a result of any of the exclusions listed in the policy, no return of premium on death benefit is payable.
What If I Have Health Insurance ?
Even the best health insurance policies today have deductibles and co-pays. If your health insurance offers you care with an HMO it may not cover services outside of the network. When you have a critical illness, your primary concern (and that of your family) is getting you the best possible care -- no matter what it costs. And a critical illness insurance benefit payment could be just what the doctor ordered.
Consider the following: "For 92 percent of the medically bankrupt, high medical bills directly contributed to their bankruptcy. Many families with continuous coverage found themselves under-insured., responsible for thousands of dollars in out-of-pocket costs. Out-of-pocket medical costs averaged $17,943 for all medically bankrupt families: $26,971 for uninsured patients; $17,749 for those with private insurance at the outset; $14,633 for those with Medicaid; $12,021 for those with Medicare. �. For patients who initially had private coverage but lost it, the family's out-of-pocket expenses average $22,568." 3
What If I Have Disability Insurance Coverage Through Work ?
First, your group disability only covers 60% of income. So if you are disabled, as a result of a critical illness, you will take a 40% pay cut. If your employer paid the premiums for your group disability, the benefits you receive could be taxable.
Many times with critical illnesses today, you will not be disabled enough consecutive days to collect disability benefits. For example, someone diagnosed with cancer will take chemo treatments on Friday and be back at work on Monday or Tuesday.
1 2008 Critical Illness Insurance Market Survey, Gen Re LifeHealth
2 American Journal of Medicine, August 2009, Harvard Medical School study
3 Cambridge Health Alliance, June 4, 2009 report on Harvard Medical School study
Want To Know What Critical Illness Insurance Costs ?
If you are ready to find out whether you can health qualify for critical illness insurance and to see what coverage costs start the process. Click here to complete our simple online questionnaire and be connected with an expert in your area there is never any obligation and the information is free.
Want To Learn More About Long-Term Care Insurance ?
The nation's best source for long-term care insurance information. Visit the American Association for Long-Term Care Insurance's Consumer Information Center. Click here for the American Association for Long-Term Care Insurance's Consumer Information Center.