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Lump-sum cancer insurance: How does it work & who is it for?

A lump-sum cancer insurance policy is a smart, proactive purchase if you have a family history of cancer — or if you'd struggle to pay for out-of-pocket medical expenses if you had to.

A recent study from the American Cancer Society estimates that almost 1.9 million people may become diagnosed with cancer in 2021.

Far too often, the fight against this deadly disease is exacerbated by the exorbitant costs of cancer treatment.

To prepare for the worst, there is a solution that can help ease the financial burden of a cancer diagnosis: Lump-sum cancer insurance.

What is lump-sum cancer insurance?

Lump-sum cancer insurance is a form of supplemental insurance that pays a one-time cash benefit upon diagnosis of cancer. The benefit you receive — the lump sum — is designed to help you cover out-of-pocket medical expenses not covered by your health insurance.

Your lump-sum cancer insurance policy will pay you a predetermined amount, which often spans from $5,000 to $200,000 or in some cases, even higher. Your premium will cost more if you choose a high payout amount.

Your policy must have been in force for a specific amount of time before you can get the benefit. For example, some companies require you to have a policy for at least 30 days.

You may purchase a cancer insurance policy individually. In some cases, you may become eligible to participate in a group cancer insurance plan sponsored by your employer. Unfortunately, you cannot buy a lump-sum cancer insurance policy if you have already have been diagnosed with cancer.

You can use these funds for anything you want unless otherwise outlined in your policy. You may pay more for your policy if you have a family or personal history of cancer or if you wait to get coverage until you're older.

Each insurance company charges a different amount for lump-sum cancer insurance. Check with various insurance carriers for specific details and costs based on your situation.

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How to use your lump-sum cancer insurance benefit

You can use your lump sum benefit however you want. Literally.

However, given the tough times ahead, chances are you will want to use this money in one or more of the following ways.

Replace lost income

Let's say that Jana decided to get a lump-sum cancer policy when she turned 45. She had only had the policy for one year when her doctor informed her she had been diagnosed with breast cancer.

At first, Jana didn't take any time off work following a lumpectomy and aggressive treatment. However, over time, Jana experienced extreme nausea and fatigue over the course of six months. She worked at her job later in the morning, worked later in the evening to make up the time, and took breaks as much as she needed to. However, with the mounting pain and exhaustion, she had to tap into the Family and Medical Leave Act (FMLA) and take unpaid time off.

She let her insurance company know about her diagnosis right away and her lump-sum cancer insurance paid out a $100,000 benefit. Jana used this money to replace the income she lost from having to take unpaid time off at work.

Health insurance deductibles, coinsurance & copayments

Jana also decided to use the money she received to help cover the costs of physician visits or treatment, hospital stays, and diagnostic tests, as well as other out-of-pocket medical expenses that her regular insurance didn't cover. Let's look at an example of how copays, coinsurance, and deductibles work and how Jana used her lump-sum insurance to cover it.

Copayments

Jana must pay for a copayment (copay), a fixed amount for covered medical services.

Let's say Jana needs to see two separate specialists. Dr. Jackson charges $100 per visit and Dr. Carter charges $400 per visit. Jana must pay a $30 copay to visit each specialist, or $60 total.

Deductibles

Jana's deductible, or the amount she must pay for covered health care services before her insurance plan starts to pay, amounts to $2,000 a year. Until she received her cancer diagnosis, she hadn't gone to the hospital at all. She had to have a lumpectomy that cost $20,000. Jana will pay $5,600 out of pocket for her procedure and can use her lump-sum cancer payout to help her cover those costs. Here's how she arrived at those costs:

  1. Jana subtracts the deductible from the total bill: $20,000 – $2,000 = $18,000.
  2. She multiplies the difference by the coinsurance percentage: $18,000 x 20% = $3,600.
  3. She adds the deductible and the coinsurance amounts: $2,000 + $3,600 = $5,600.

Learn More: What Is an Insurance Deductible?

Coinsurance

Coinsurance is a portion of the medical cost you pay after you meet your deductible.

Jana's insurance requires a 20% coinsurance for specialist visits. Jana calculates her coinsurance by multiplying each bill by the coinsurance percentage. Unlike a copay, the coinsurance will cost different amounts, like this:

  • $100 x 20% = $20, so $20 goes to Dr. Jackson.
  • $400 x 20% = $80, so $80 goes to Dr. Carter.

Learn More: What Is Coinsurance?

Household expenses like mortgage payments, groceries & utilities

Jana also decides to use the insurance payout toward her family's day-to-day necessities. She uses it for her mortgage payments, groceries, utilities, and child care for her two-year-old daughter. Whenever she has another bill that comes up, she makes sure she can use the insurance money toward that particular expense.

Travel to receive treatment

Jana also knows she can use the money for travel and lodging when she has to go far away from home for treatment, hospital stays, visits to out-of-network specialists, and even trips to visit an out-of-state dietary specialist. Again, she checks the fine print on her insurance plan so she knows how she can and can't use the money.

Is lump-sum cancer insurance worth it?

Do you think you might need to fill the gap between your regular coverage and out-of-pocket expenses to prepare for the possibility of getting cancer?

You can use the money in several ways, and it's not just limited to helping cover the costs of physician visits or treatment, hospital stays, and diagnostic tests. You can use it for other out-of-pocket expenses, your family's day-to-day necessities, lost income, and more.

While many cancer plans cover a wide range of costs and services, never assume that all insurance companies have the same lump sum plan. Read the fine print and ask your insurance company about all the details before you choose the right plan for your needs.


Melissa Brock is the founder of College Money Tips and a full-time freelance writer and editor. She loves helping families navigate their finances and the college search process.

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.