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Life insurance with critical illness: Is this rider worth it?

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6 mins

Shopping for life insurance? Then you've probably heard about riders — optional benefits you can add to customize your coverage.

When done right, riders can take your policy to the next level for you and your family. Take the critical illness rider.

In addition to paying a death benefit to your beneficiary when you pass away, a life insurance policy with a critical illness rider will also pay a benefit to you while you're living if you are diagnosed with cancer, heart attack, stroke, or another covered condition. The critical illness benefit can be used however you want, ideally to help with medical expenses.

While it's never fun to consider any of these events happening to you, it's important to understand that traditional health insurance rarely covers everything. These emergencies and illnesses often cost more. Much more.

What does life insurance with a critical illness rider cover?

A critical illness rider — like a standalone critical illness insurance policy — will cover a predetermined list of conditions. The most commonly covered illnesses include cancer, heart attack, and stroke. Some riders may also cover other conditions like paralysis, Alzheimer’s, bypass surgery, angioplasty, kidney failure, or an organ transplant. You should always consult with the insurance company regarding the illnesses it covers prior to purchase.

The benefit a critical illness rider pays out will typically come in the form of a lump sum. And the best part? It can be used for anything. Spend it on treatment, prescriptions, and other medical expenses not covered by your regular health insurance. Use it to keep up with bills at home, replace missed paychecks, and take care of your family. Whatever you like.

How life insurance with a critical illness rider works

For example, let's say an individual who has a life insurance policy with a critical illness rider suffers an unexpected heart attack while on his morning walk. Upon filing a claim, he is approved and receives a lump-sum benefit to help with his recovery. He decides he'd like to use the money to pay for traveling back and forth to a top-tier treatment center, which is three states away. He also puts some money toward monthly bills and groceries for his family.

Note that a critical illness rider is slightly different than a terminal illness rider, also known as an accelerated death benefit rider. A terminal illness rider accelerates your life insurance policy's death benefit if you are diagnosed with an illness that you won’t recover from. Critical illness riders, on the other hand, can provide a separate benefit that is designed for severe illnesses that could still recover from. Since many of these conditions overlap, it all comes down to the severity of your specific diagnosis.

Once again, every provider has its own policies and rules for different riders. Be sure to ask your agent exactly what your terminal illness rider will cover.

How to get life insurance with a critical illness rider

Adding a critical illness rider, or any rider for that matter, to your life insurance policy is typically a pain-free part of the application process. Here's what to expect.

Step 1: Compare rates

When buying individual life insurance, compare your rates by asking several insurance companies how much adding this rider will cost. If you find a policy at a price that works for you, it usually doesn't take long to apply online.

Step 2: Apply for coverage

Speak with an agent, complete an application, take a medical exam (if necessary) and the insurance company will underwrite your policy. Each insurance company will require different application requirements. Ask questions during the application stage so you know what to expect.

Step 3: Pay your premiums

You can pay your first premium via personal check, cashier's check, or an electronic funds transfer (EFT). Check with your provider to find out how to pay your first and subsequent life insurance premiums. They may only accept a check or bank transfer after the first payment. Learn more about how to pay your premiums and continue to pay your premiums so you ensure that you'll receive your payout when you need it.

Step 4: File a claim if you get sick

If you experience a covered critical illness, you will need to notify your insurance company and file a claim. Your insurance company will review factors related to your illness to see if it qualifies for your policy's critical illness benefit. Your insurance provider may contact your doctor or physician to take a look at relevant medical records.

How much does life insurance with a critical illness rider cost?

A critical illness rider doesn't usually cost much, and some insurance companies include it as a part of your policy with no charge at all.

The amount you'll pay depends on the amount of risk you present to your insurance carrier, however. Just like other types of insurance coverage, the younger and healthier you are, the lower your premiums will cost you — even after a long period of time.

Keep in mind that other things (like lifestyle factors) influence your coverage, such as:

  • Nicotine use
  • Your gender
  • Your geographic location

In addition, it's important to know the exclusions of a critical illness rider, such as whether you have a preexisting condition, critical illnesses that occur 90 days into the coverage, certain lifestyle factors, and even military activity during peacetime. Any critical illnesses that occur as a direct result of these activities will not be covered. Check with your provider to find out what the specific exclusions are for that particular insurance company.

Learn More: How Much Does Life Insurance Cost?

Is life insurance with a critical illness rider worth it?

One of the reasons you get life insurance involves caring for your loved ones after death. However, a critical illness rider allows you to lengthen the amount of time you access your benefits by allowing you to access the benefit before your death.

Your decision about the type of life insurance you get and the carrier you choose will also affect your cost of coverage. The more life insurance coverage you choose to get, the more you'll pay for premiums. Riders will affect the amount you pay as well.

A critical illness rider helps ease your financial burdens and puts you in the driver's seat when so many other things aren't going the way you want them to, particularly with your health.

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.

— Published July 5, 2021
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