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How does critical illness insurance work in 2024?

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In the market for critical illness insurance, but not sure how it works? You've come to the right place.

In this article, we'll cover:

We'll also explain how critical illness insurance compares to others types of coverage, including health, disability, life, and accident insurance.

Read on to learn more.

How critical illness plans work

Critical illness insurance is supplemental insurance that pays a lump sum benefit if you are diagnosed with a covered illness. It is designed to cover the cost of treating and recovering from expensive illnesses and procedures.

According to the American Heart Association, 720,000 Americans suffer a heart attack annually, and somebody has a stroke every 40 seconds. The American Cancer Society said there is a 33 percent chance for both men and women of developing cancer. In these situations, your health insurance and disability insurance may help with most of your financial needs, but CII may cover the remainder so that you don’t get hit with an unaffordable bill.

Get a free critical illness insurance quote online in seconds.

How other types of coverage compare

Health insurance pays some or all of the cost of a variety of medical treatments, ranging from physicals to emergency room visits to surgical procedures. Prescription drugs are also typically paid for in part by health insurance. With health insurance, you will pay the full expense of all medical procedures. According to, the average cost of fixing a broken leg without health insurance is $7,500. A three-day hospital stay can run $30,000.

Disability insurance is designed to replace a major portion of your income if you are unable to work due to injury or illness. Estimates range from 25 percent to 30 percent of American workers will endure some type of temporary disability during their careers that will prevent them from working. If you can’t work, you can’t earn a living. That’s what disability insurance protects you against. It can also help if you have to work less than normal because you’re slowed by an injury or illness.

Life insurance is a contract with an insurance company. The policy’s owner pays the company a regular payment, called the premium. In exchange, the company will provide a payment if the insured individual dies while the policy is still active. If you have dependents, life insurance can replace some of your income and help pay off debts if you die prematurely. It can also help cover funeral and estate settlement costs.

Accident insurance pays out a lump sum if you incur specific kinds of injury as a result of an accident. Unlike disability insurance, your injury does not have to impact your ability to work in order to collect a policy benefit. It can also complement health insurance if an accident causes you to have medical expenses that your health insurance doesn’t cover.

How critical illness claims work

The most common covered conditions include cancer, heart conditions, stroke, and organ damage, including transplants. Some policies may also provide coverage for less common conditions, such as blindness, deafness, ALS, cystic fibrosis, severe burns, major head trauma, and coma.

The severity of your condition will determine whether you receive a benefit. The more serious your prognosis, the more likely you are to receive a full benefit from the policy. Critical illness insurance policies pay partial benefits for less serious conditions. And you may not receive benefits at all if the condition is easily treated.

CII policies generally do not cover chronic conditions such as diabetes, asthma, or multiple sclerosis. They also do not cover pre-existing conditions.

When shopping for coverage and requesting critical illness insurance quotes, it's important to take note of differences in covered conditions from company to company.

Get a critical illness insurance quote online.

How other types of coverage compare

Health insurance policies vary somewhat on what is and is not covered. In general, treatments for pre-existing conditions and necessary procedures are covered. Doctors' visits, hospital visits, treatments by specialists, prescription drugs, and mental health treatments are typically covered.

Health insurance policies typically have deductibles for the year, and copays for certain types of visits. Once your deductible is met, the policy may only cover 60 to 80 percent of the full cost, though some policies will cover the full amount once the deductible is met.

Disability insurance has the most complicated stipulations for what is and is not covered. Some rules will vary by policy, such as whether you can claim disability for mental illness.

In general, disability insurance coverage is based on your ability to work. In some cases that means your ability to perform the tasks of your chosen profession. In other policies, your ability to work is measured by whether you can perform any type of job, even ones that pay less money.

Insurers typically will not pay claims for injury or illness resulting from self-inflicted acts, criminal activities, acts of war, civil disobedience or rebellion, and from operating a motor vehicle while intoxicated.

Individuals may also have additional exclusions that restrict coverage for claims resulting from or related to a preexisting medical condition, or from participation in a potentially hazardous activity that presents an increased risk of a potential disability.

Life insurance policies typically pay all claims once they have proof the insured has died. The one exception is for deaths that occur inside the policy’s contestability period, which is generally the first two years of the policy.

If the insurance company finds material misrepresentations on the application during this period, it can deny a claim. For example, if the insured’s age or health condition was not accurate on the application and the insurance company discovers this during the contestability period, a claim can be denied. Once this period expires, the insurance company has no legal recourse if it finds inaccurate application information.

Deaths by suicides that occur within the contestability period are also typically denied a claim.

Accident insurance covers a variety of injuries resulting from an accident. These may include dislocations, lacerations, concussions, burns, and other serious injuries. If your insurance company doesn’t specifically identify your injury, you won’t receive a benefit. An accident policy typically does not cover injuries resulting from illness, dangerous activities, those that occur while under the influence, self-inflicted acts, or committing a crime.

How critical illness benefits work

A critical illness insurance policy provides a one-time payment based on the contractual benefit, though it may be less depending on the severity of your condition. This is money to use however you want.

How other types of coverage compare

Health insurance benefits are never paid to the insured. Medical professionals bill the insurance company for provided treatments. The insurer pays its obligated portion of the bill directly to the provider. Whatever the insurance company does not cover is then billed to the insured.

Disability insurance: In general, a disability policy will pay a monthly benefit equal to about 60 to 80 percent of your pre-disability income. This can vary depending on your coverage and the severity of your disability. For example, if a disability limits your ability to work but doesn’t completely keep you off the job, you may receive a percentage of your contracted benefit.

You will receive benefits until you are able to return to work up to the maximum benefit period. This can be anywhere from six months for a short-term disability policy up to several years for a long-term disability policy.

Life insurance: Your beneficiaries will receive the policy’s contracted death benefit, which is determined when you buy the policy. The death benefit is a one-time payment made once your beneficiaries complete the claims process.

Accident insurance pays out a preset number of times or over a specific range of time. The benefit amount you receive depends on the diagnosis and severity of your injury, how your injury was treated, and the type of coverage you have.

How critical illness underwriting works

Individual critical illness insurance policies generally do not require as much underwriting, except for a series of yes-no questions to record any pre-existing conditions. If, however, you are seeking higher amounts of coverage, you may be subjected to full underwriting.

How other types of coverage compare

Health insurance: Medical underwriting is no longer used for most health insurance policies due to the Affordable Care Act.

Disability insurance: Individual disability policies typically require full underwriting, which includes a paramedical exam. You will also be assessed based on age, gender, overall health, job, and income.

Life insurance qualification and premiums are based on a number of factors, including age, gender, overall health, family history, alcohol, and tobacco use, driving record, and employment. You will be required to fill out a questionnaire about your health and habits and also undergo a medical exam.

Accident insurance typically does not require underwriting.

How critical illness pricing works

Premiums for critical illness insurance will vary, based on a number of factors. If you’re young and don’t need a large benefit amount, the premium can be as low as $10 a month. But older applicants who want far more coverage can pay 10 times that amount or more. You check your rates by getting a personalized critical illness insurance quote online.

How other types of coverage compare

Health insurance: If you purchase individual health insurance through the Affordable Care Act’s Health Insurance Marketplace, your premium is based largely on what you earn. You may qualify for tax credits and other savings based on your income and household size. If you struggle to earn an adequate income, you may qualify for free or low-cost coverage.

The cost through private insurers will vary widely based on your family size, deductible, coverage options, and other factors.

Disability insurance: In general, you can estimate spending between 1 percent and 4 percent of your current income on a physician disability insurance policy. Another general rule of thumb is that you will typically pay between 2 percent and 6 percent of your monthly benefit amount.

Life insurance: Estimates show that the average 20-year term policy costs $23 a month for a 30-year-old non-smoker. It increases to $26 at age 35, $35 at age 40, and $57 at age 45. Smokers can expect to pay more than double those rates.

Accident insurance typically costs between $6 and $20 per month if you’re young and healthy. You can elect higher amounts of coverage for a higher premium amount.

Bottom line

None of these types of policies can serve as a replacement for the others. Critical illness insurance or accident insurance won’t provide the same benefit as disability insurance. Likewise, disability insurance won’t cover the cost of treating or recovering from accidents or critical illnesses.

These policies can complement each other in many ways. Critical illness policies can help supplement health insurance and disability insurance by providing extra money for coverage gaps. The same goes for accident insurance.

In addition, critical illness, accident, and disability coverage are often included as riders on life insurance policies.

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 June 10, 2020
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