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Is cancer insurance worth it? Here’s how to decide

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6 mins

Potential buyers of supplemental insurance are always faced with the question of whether it's worth the cost.

The difficulty in answering this question is weighing the cost of premium against the potential policy benefits. You also have to consider the likelihood of needing supplemental benefits, the restrictions on qualifying for those benefits, potential funding alternatives, and the many unknowns about your future health.

Ultimately, determining whether various supplemental health insurance plans are worth buying is a choice only you can make.

That includes cancer insurance.

How cancer insurance works

Cancer insurance is a supplemental insurance policy that offers benefits for expenses related to a cancer diagnosis. It is designed to fill in the gaps left by the limitations in your primary health insurance plan.

Cancer insurance can help pay for medical and non-medical costs related to living with cancer. This includes co-pays, deductibles, hospital stays, diagnostics tests, procedures, child care, travel expenses, lost income, and more.

Cancer policies vary on eligibility requirements, what is covered and how payments are made. Some pay a lump sum when you receive a cancer diagnosis. Others pay for specific treatment and care expenses, either to you or directly to the provider.

Cancer policies are often available through an employer’s benefits program, though employees typically have to pay the full cost. Individually purchased cancer policies are also available through some insurance carriers.

Health insurance won't cover 100 percent

The cost of cancer treatments varies widely based on the type and severity of the disease, among other factors. For example, the full uninsured cost of chemotherapy treatment varies between $10,000 and $200,000. It depends on how many treatments you need and which drugs you are prescribed throughout your treatment.

Chances are, your health insurance won’t cover the full cost of cancer treatment. For example, say you accumulate total charges of $100,000, which may include office visits, x-rays, blood tests, chemotherapy, and other treatments. This doesn’t include lost income from work or travel expenses.

All the health care providers involved in your cancer treatment will first send their bills to your health insurance provider. Depending on your coverage, the insurer will pay 80 percent of the bills. That’s the good news.

The bad news is you are stuck with the remaining 20 percent. In this scenario, that’s $20,000.

Without cancer insurance or another type of supplemental policy, that money will have to come from your savings or be paid for in installments that will last years.

Cost of cancer treatment vs. cost of cancer insurance

One quote showed a 40-year-old could get a policy with a $20,000 maximum benefit for $20 a month.

If this individual got cancer, say, at age 60, he or she would have paid $4,800 in premium over 20 years and potentially received a $20,000 benefit in return. This scenario would have made the policy worth buying.

Another factor to keep in mind is that some policies reduce the maximum benefit once you reach a certain age. Some reduce benefits by half once you turn 70; some as early as age 65.

Now imagine the scenario where you paid the $20 in premium for 25 years on a $20,000 cancer policy and just turned 65 on a policy that halved your benefits. You would have paid $6,000 over those 25 years to collect $10,000 in benefits. That’s still a positive return, but much less of one.

Cancer insurance has limits to consider

As you weigh your options, you should consider the limitations of cancer insurance.

One is the maximum benefit amount. One example of a cancer policy caps benefits at $2,000 per month and $16,000 per year for covered treatments plus a one-time first diagnosis limit up to $10,000 upon learning you have cancer.

There are other policies that have maximum total payouts of just $10,000. While there are policies that provide a $100,000 maximum benefit — or more — your insurance premium will cost more the higher your benefit amount.

Cancer policies may also deny benefits for less severe diagnoses, such as non-melanoma skin cancer. You should also check whether your policy will provide benefits for a reoccurrence of your cancer after remission and how long between diagnoses will the policy pay for a second occurrence.

One of the biggest factors to consider is whether a cancer policy allows double benefits. Some plans stipulate that you cannot receive double benefits from both a cancer policy and your primary health insurance plan. In addition, your primary health insurance plan may not pay for duplicate benefits offered by a cancer insurance plan due to a coordination of benefits clause. Coordination of benefits is a process that decides which insurance pays first when you have multiple policies.

What are the odds of getting cancer?

Of course, there’s a good chance you would pay premiums on cancer insurance for 20 to 30 years and never get the disease.

According to the National Cancer Institute, about 39.5 percent of people will be diagnosed with cancer at some point during their lifetimes. That means three out of five people will never get cancer of any kind.

At the same time, of those 40 percent of people who will be diagnosed, many will have less severe forms of the disease. Keep that in mind if you’re considering the expense of a cancer policy with a $100,000 or more benefit amount.

Alternatives to cancer insurance

If you’re unsure about whether to purchase cancer insurance, there are a few alternatives. These options can still help you in the event you get cancer, but they can help financially with other health issues if you don’t.

Cancer insurance with riders

A number of cancer insurance policies have riders that provide benefits for other ailments. There are also carriers that offer a combined cancer/heart attack/stroke policy.

Critical illness insurance (CII)

Critical illness insurance is a type of insurance that pays a lump sum benefit if you are diagnosed with a covered illness. In addition to cancer, CII policies often cover heart attacks, strokes, organ damage, and other acute conditions. A potential downside to CII is that the severity of an illness dictates whether you receive benefits. Policies pay partial benefits for less serious conditions. And you may not receive benefits at all if the condition is easily treated, such as a cancer diagnosis that was detected early.

Health savings account (HSA)

An HSA is a tax-preferred savings account that enables users to set aside tax-free dollars to pay for health expenses, including regular medical care, dental and vision expenses. HSA funds would also be useful to spend on cancer treatments. A limitation of HSAs is that you can only contribute to one if you are covered by a high-deductible health insurance plan. Also, it may be difficult to save an amount comparable to what a cancer insurance policy could provide.

Jack Wolstenholm is the head of content at Breeze.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

— Published April 25, 2021
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