While standard health insurance will usually pay for hospital care, hospital stays continue to get shorter and outpatient care increases even for those with critical illness. There are deductibles and copays associated with outpatient care as well as hidden non-medical financial burdens associated with serious illness such as lost wages and benefits, increased transportation costs, child care, lodging near treatment facilities, and meals away from home.
Critical illness insurance covers the medical cost of treating life-threatening illnesses that standard health insurance doesn’t pay, which may include out-of-network referrals or treatments not covered by a traditional policy and many non-medical costs. Although your policy will have a benefit amount, some policies do not guarantee payment of the full amount.
Conditions that are considered a critical illness may vary.
The more your health insurance covers, the less the need for critical illness insurance. For example, if you are having an angioplasty or coronary artery bypass, you will only get a small portion of the benefit, since they are in-hospital procedures that most health insurance pays for completely and outpatient care and recovery time afterwards is limited.
Before getting critical illness insurance it may be worth comparing the cost of increasing your health insurance coverage to the cost of purchasing critical illness insurance. If you have Medicare, you may be more able to afford a Medicare supplement policy than critical illness insurance. If you have Medicaid which covers most healthcare costs, you may not need to consider this insurance at all.
Critical illness insurance is fairly inexpensive, even more so if purchased as a rider on your current life insurance.
Even if identified as a critical illness by your policy, you may not get all or any of your benefit if your illness is not serious or life-threatening. You may not receive any benefit at all if you have a non-life-threatening/good prognosis cancer or if a potentially life-threatening cancer is diagnosed and treated in the early stages.
The amount of coverage is fairly limited, typically $10,000-$50,000, although it is tax-free. While helpful, this amount may only make a small dent in the cost associated with many critical illnesses. You may be able to increase your coverage if you have a physical examination and are healthy.
The benefits can be paid out in different ways.
The total amount could be received for each of a limited number of covered illnesses. For example, if you have a benefit amount of $30,000 and develop cancer, have a stroke, and get an organ transplant, your total benefit could be $90,000. Benefits for a single category cannot be carried over to another. With the same example, if you only use $20,000 of your stroke benefit, you can’t use the remaining $10,000 for your cancer.
This amount could be the total paid for the entire group of illnesses collectively, meaning you would only receive $30,000 no matter how many of the illnesses you develop.
The more illnesses that are covered, the higher the premiums. Covering multiple illnesses increases the risk of needing benefits. Applying the maximum benefit to more than one illness increases the amount the company is at risk for.
Non-medical expenses that can be paid for include mortgage payments, daily living expenses, transportation expenses including costs of travel to and from treatment centers and retrofitting vehicles to carry scooters or wheelchairs, and/or home modifications such as installing ramps or lifts. You may even use the funds to take a vacation as respite when you are able to.
Critical illness insurance can have significant shortcomings.
Like life insurance, benefits will not be paid if the illness was caused by invalidating criterea such as a criminal act, self-inflicted condition, suicide attempt, or substance abuse.
Alternatives include a health savings account, a flexible spending account, disability insurance, or more comprehensive health insurance, such as adding Medigap insurance if you are on Medicare.