Critical Illness Insurance: What Is It & Do I Need It?

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

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 states that there is a 33 percent chance for both men and women of developing cancer in their lifetimes. Just as troubling is the fact that 66% of all bankruptcies in the United States are tied to medical bills.

Perhaps you know somebody who recently suffered a heart attack or stroke, or your family has a health history of cancer, putting you at higher risk in the future. Maybe you participate in a health insurance plan where — if you had to — there’s no way you could cover the high deductible without raiding your emergency fund and other savings. (Or you simply have no savings to speak of, period.)

Whatever the reason might be, the uncertainties of life in the age of COVID-19 may have you thinking more and more about the high cost of treating certain illnesses, even with health insurance. This may prompt you to look into the purchase of critical illness insurance, an affordable form of supplemental coverage. It’s also the subject of this in-depth guide, where we share:

Read on to learn more.

Critical illness insurance definition

Critical illness insurance is a type of supplemental insurance that pays out a one-time lump sum cash benefit if you are diagnosed with a covered condition, such as cancer, heart attack, or stroke. Also known as critical care insurance, sickness insurance, and cancer insurance, this type of coverage is designed to assist with the cost of treating and recovering from serious conditions requiring expensive treatment and procedures.

Curious what critical illness insurance costs? Check your rate here.
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What does critical illness insurance cover?

In addition to cancer, heart attack, and stroke, critical illness insurance policies may also cover the following conditions:

  • Paralysis
  • Coma
  • Alzheimer’s
  • Bypass surgery
  • Angioplasty
  • Kidney failure
  • Organ transplant

(This is not a universal list — be sure to consult with the insurance company regarding what illnesses are and aren’t covered prior to purchase.)

It’s important to understand that the benefit you receive from your critical illness insurance policy is your money to use however you want. First and foremost, you may need to cover out-of-pocket expenses not covered by your health insurance, such as deductibles, copays, coinsurance, and experimental treatments that require travel. But you can also use this money to replace the income that you or your spouse has lost from missed work due to your illness. Stay on track with your monthly financial obligations, from your mortgage and car payments to childcare and utility bills, all while keeping up with everyday living expenses.

The best way to begin shopping is to check your rates by getting a free critical illness insurance quote online. This will give you a better idea of what you can expect to pay if you do decide to get covered.

Check your critical illness insurance rates.

How does critical illness insurance work?

As with other types of insurance that are designed to protect personal health and wellness, you can obtain critical illness insurance in the form of an individual plan or through a group plan if it is available to you. Both avenues to coverage accomplish the same objective — helping you fill the holes in your health insurance to achieve greater financial stability.

Group critical illness insurance

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

A number of insurance companies 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 critical illness insurance 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 critical illness insurance is not available to you (or it is but the coverage is not what you’re looking for), you can buy an individual critical illness insurance policy. Individual policies are offered by a number of insurance companies that offer health, life, and disability insurance. In fact, some life insurance policies even offer critical illness coverage as an optional rider that can be tacked on for an additional cost.

When buying individual coverage, the first step to compare your rates by running some critical illness insurance quotes. If you find a policy at a price that works for you, you can apply online in as little as 10 minutes.

Individual 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.

Personal critical illness insurance policies offer a variety of benefit amounts, ranging from $5,000 to $75,000. A few policies offer a lifetime maximum of up to $500,000. The higher the lifetime maximum, the more you will pay in premium. (More on how the cost of your policy is determined in a minute.)

Typically, individual critical illness coverage is guaranteed renewable for life, as long as the policy goes in-force before age 70. However, it’s worth noting that after the insured turns 70, the policy’s benefit amount is reduced by 50%. That means if you buy critical illness insurance with a $50,000 benefit amount prior to age 70, any claim you make after age 70 will pay out $25,000.

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, while others provide benefits for upwards of 30 conditions. Keep in mind that the more illnesses the policy covers, the more you will pay each month in premiums.

[ Read: How does critical illness insurance compare to other types of coverage? ]

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How much does critical illness insurance cost?

As the policyholder, how much you will pay for critical illness insurance coverage depends on the amount of risk that you present to the insurance carrier. Like similar types of coverage, such as health, life, and disability insurance, the younger and healthier you are, the lower your premiums will be. But age and health aren’t the only factors that influence the cost of coverage.

When shopping for critical illness insurance, it helps to know that:

  • If you use nicotine, your rates will increase.
  • With all other factors, women receive lower rates than men.
  • Cost varies by geographic location.

Personal life aside, the various decisions you make when applying for a policy will also affect the cost of coverage. Naturally, the higher your benefit amount is, the higher your premiums will be. Any optional benefits, or riders, you add to customize your policy, such as a return of premium rider, will increase what you pay each month, too.

That being said, let’s take a look at some sample quotes. First, here are the estimated monthly premiums for a woman from Eugene, Oregon, broken down by age, benefit amount, and nicotine usage:

Female in Eugene, ORDo you smoke?$5,000 benefit$25,000 benefit$50,000 benefit$75,000 benefit
25 years oldNo$4.77$10.16$18.14$26.13
Yes$5.16$17.08$32.98$47.88
35 years oldNo$5.34$18.02$34.86$50.70
Yes$8.01$31.35$61.52$90.69
45 years oldNo$8.68$30.71$57.25$85.79
Yes$12.29$53.75$103.33$154.90
55 years oldNo$11.35$48.05$94.93$140.81
Yes$19.12$87.91$172.66$256.40

On the flip side, here are the estimated monthly rates for a man from Savannah, Georgia, split out by the same factors as above:

Male in Savannah, GADo you smoke?$5,000 benefit$25,000 benefit$50,000 benefit$75,000 benefit
25 years oldNo$4.07$12.64$21.72$31.56
Yes$6.57$19.17$36.16$53.16
35 years oldNo$6.03$21.46$50.01$60.04
Yes$9.21$37.36$73.55$108.74
45 years oldNo$10.76$25.94$78.07$116.01
Yes$16.10$72.82$141.47$211.12
55 years oldNo$17.78$75.20$148.22$221.25
Yes$29.24$138.52$273.86$408.21

Again, cost clearly increases as your age and the policy’s benefit amount increase. Smoking will raise your premiums no matter what. As a result, rates may range from extremely affordable (only $4 per month) to quite expensive (over $400 per month) depending on a variety of factors.

Of course, these are just estimates. And while they may help paint a better picture of what to expect when shopping around, you should always request a personalized quote to see your real rates. (This can be done online for free in a matter of seconds.)

Do I need critical illness insurance?

High health insurance deductibles and copays. A family history of expensive illnesses, from cancer to Alzheimer’s. No reliable financial safety net.

As discussed earlier, these are just a few of the reasons why you might consider purchasing a critical illness insurance policy. And now that you better understand how this type of coverage works — from what it covers to how much it costs — it may even seem like a no-brainer. After all, just consider the world of difference a payment of up to $75,000 could make if you were diagnosed with cancer or suffered from a stroke.

If you’re fortunate, you’ll never need to use your critical illness coverage. (In that event, having a return of premium rider on your policy can even get you some of your money back.) But if you do, you’ll have a stronger financial safety net to fall back on. Sure, your health insurance and disability insurance may help with most of your financial needs. But many are not so fortunate. And in that case, critical illness insurance can help cover what is leftover.

Unexpected, unaffordable medical bills can wreak havoc on your personal finances and health. With critical illness insurance, you can prevent it.


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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