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Cancer insurance: What is it & when should you buy it?

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According to the American Cancer Society, 1 in 3 people will be diagnosed with cancer in their lifetime. If you've ever had cancer or know someone who has, you're well aware of how this disease upends the lives of everyone it touches.

The physical toll cancer takes on the human body is devastating, as are the adverse effects it has financially on those impacted by it. According to research by AARP, average costs for cancer treatment run in the $150,000 range. That same research stated that cancer patients are 2 ½ times more likely to declare bankruptcy than healthy people.

You can take certain steps to minimize your risk of contracting cancer, such as eating a healthy diet, being physically active, and protecting yourself from the sun. But is there anything specific we can do to protect ourselves financially from a cancer diagnosis? Many people believe there is, and they invest in it monthly. It's called cancer insurance.

Cancer insurance definition

Cancer insurance is a type of supplemental insurance that pays a benefit if you, the policyholder, are diagnosed with cancer. It's not intended to replace group health insurance coverage you have through your employer or an individual health insurance policy you've purchased. But, you can purchase a cancer insurance policy by itself as a stand-alone policy without having any other type of health insurance coverage.

Oftentimes, people find it confusing when they are presented with the opportunity to purchase a cancer policy because they already have health insurance that includes coverage for a cancer diagnosis and treatment. They question whether it makes financial sense to pay for additional cancer coverage that they believe might duplicate benefits. But is that really the case?

Your group insurance or individual major medical policy may pay for procedures and treatments related to a cancer diagnosis. Still, there may very well be other related expenses that aren't covered by your health insurance. They include:

  • Co-pays
  • Deductibles
  • Lost wages
  • Experimental treatments
  • Out-of-network providers
  • Travel costs for treatment
  • Child care
  • Costs exceeding your primary plan benefits

For many people, financial bankruptcy becomes a reality not because they didn't have health insurance, but because of the numerous cancer-related expenses not covered by their primary health insurance policy.

Get an affordable cancer insurance quote online.

How does cancer insurance work?

As with most other types of insurance, cancer insurance is available in different forms, depending upon the insurance company issuing the policy. There are three basic types of cancer insurance policies:

  1. Expense incurred policy: A policy that pays a percentage of all covered expenses listed in the policy, up to the policy's limits.
  2. Indemnity policy: An indemnity policy is similar to the expense incurred policy, but instead of paying a certain percentage of all covered expenses, it lists a specific dollar amount of each individual covered treatment.
  3. First diagnosis policy: This policy pays the policyholder a lump-sum payment upon the first diagnosis of cancer.

With these policies, no benefits can be denied due to a pre-existing condition if the cancer is diagnosed after the policy's effective date.

How does cancer insurance compare to other types of coverage?

Cancer insurance is not intended to replace any other insurance coverage you already have. It is meant to supplement, not replace. However, it's not the only type of policy that you’ll benefit from if you're ever diagnosed with cancer.

  • Health insurance: usually provides benefits for cancer procedures and treatments, though most plans don't cover the full cost of treatment
  • Critical illness insurance: is similar to cancer insurance in that it pays a lump-sum benefit upon the first-time diagnosis of cancer
  • Disability insurance: replaces a percentage of your income if you are unable to work due to cancer
  • Life insurance: pays your beneficiary a lump-sum benefit if you die as a result of having cancer.

Cancer insurance supplements your other insurance coverage and is part of an overall insurance planning strategy.

How much does cancer insurance cost?

Like any other type of insurance you purchase, various factors will determine your monthly cancer insurance premium. These include:

  • Your age
  • Your health history
  • The benefit amount payable by the insurer

One size doesn't fit all when it comes to insurance rates, and cancer insurance is no different. Depending on these variables and the particular insurance company you're receiving a quote from, rates can be as low as $20 per month, or they can be more than $200 per month.

Is cancer Insurance worth getting?

The short answer is, it depends. Whether or not buying a cancer insurance policy makes sense for you is going to depend on your particular situation and preferences. It often is a good choice for people that:

  • Have a family history of cancer: If you've had relatives diagnosed with cancer or treated for it, cancer insurance can give you peace of mind that may well make it worth the cost.
  • Have gaps in their health insurance coverage: If your health insurance plan has a schedule of benefits that pays a minimal benefit for cancer treatment, a supplemental cancer policy may fill in those gaps and provide you with the protection levels you need.
  • Have a high deductible health plan: Many people are choosing high deductible health plans in order to keep their monthly health insurance premiums at a reasonable level. If you have had to go this route, a cancer policy that pays a lump-sum benefit can help you meet that deductible and potentially some co-insurance costs.

Cancer insurance has been available for decades and has stood the test of time because it has helped many individuals and families survive the financial pressure that a cancer diagnosis can create. If you're young, healthy, and have financial reserves, then it may not be in your best interests to buy cancer insurance at this stage of your life.

Consult with your financial advisor or a licensed insurance agent concerning cancer insurance and its place in your insurance portfolio. An ounce of prevention may be worth a pound of cure.

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 January 12, 2021
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