Critical illness insurance is a type of supplemental coverage that pays a lump sum benefit if you are diagnosed with a covered illness.

You may be starting a new job in the coming months.

Your existing employer may expand their benefits offerings when re-enrollment occurs at the end of the year.

Perhaps you know somebody who recently suffered a heart attack or stroke.

Whatever the reason, you may be thinking more about the high cost of treating certain conditions, even with health insurance.

This may prompt you to look into the purchase of critical illness insurance (CII).

Critical illness insurance definition

Critical illness insurance is a type of supplemental coverage 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. These include heart attacks, strokes, and cancer.

Critical illness insurance can pay for costs not covered by health insurance, such as deductibles and out-of-pocket costs. You can also use the funds for travel expenses and your regular bills.

As with other types of insurance that cover personal health, people can purchase CII through a group plan or an individual policy. Below is an overview of each type of CII.

Check your critical illness insurance rates.

Group critical illness insurance

More and more employers offer group critical illness insurance as a way to protect employees from the high cost of certain illnesses. According to the Society for Human Resource Management, about 25 percent of employees include CII in their benefits packages.

A number of insurers offer employer-sponsored group CII plans. Some even enable companies to tailor their plan to match the specific needs of their workforce.

In some group plans, employers cover some or all of the cost of the insurance. In others, the employees pay the full premium if they elect coverage, though they benefit from a group rate.

In most employer-sponsored group CII plans, the coverage is portable. This means you can continue coverage as an individual policy if you no longer work for the company by paying the full premium amount. This is a benefit since most employers do not offer group CII.

Many group CII plans are packaged with high-deductible health plans or group disability insurance plans.

Some group carriers offer coverage options for employees and/or eligible dependents. Some plans even offer a wellness benefit to encourage employees and spouses to get preventative care.

If an employee is diagnosed with a condition covered by the policy and meets the policy requirements, the insurer will pay a lump sum benefit. Covered conditions can vary by plan, but typically a group policy will cover cancer, heart attacks, strokes, and major organ failure. Benefits may be paid at a percentage of the amount of coverage the employee has elected.

As with most types of group insurance, there is no medical exam or underwriting. Employees who enroll are automatically approved for coverage.

Individual critical illness insurance

If group CII is not available to you, you can buy an individual critical illness insurance policy from a number of insurance companies that offer health insurance, disability insurance, and/or life insurance. Several life insurance policies offer critical illness coverage as an optional rider.

Individual policies generally do not require 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.

Policies offer a variety of benefit amounts, ranging from $10,000 to $50,000. A few policies offer a lifetime maximum of up to $500,000. The higher the lifetime maximum, the more you will pay in premium.

Shopping for an individual policy also gives you the ability to select the number of illnesses you want to be covered. Some individual CII policies cover a handful of ailments. Others provide benefits for 30 or more conditions. Keep in mind that the more conditions it covers, the more your policy will cost.

In addition to these factors, your premium will be based on your age. If you’re young and don’t need a large benefit amount, the premium can be as low as $10 a month. Older applicants who want far more coverage can pay 10 times that amount or more.

Also, CII premiums do not remain the same. Insurance companies raise premiums as you age. This increase may occur each year or as you reach a new age range. In addition, your benefits may decrease once you reach a certain age, usually around 65. Most critical illness insurance policies expire at age 70 or 75.

Do I need critical illness insurance?

Whichever option you elect, critical illness insurance may be a necessary addition to your insurance portfolio.

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.


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 June 01, 2019

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