critical illness insurance

Critical Illness Insurance: How Does It Work?

Unexpected health emergencies — like heart attacks, strokes or cancer diagnoses — often involve expenses beyond typical medical bills. Transportation, childcare, bills and other costs can pile up in the face of extended treatment or recovery periods.

For many patients and their loved ones, the solution is a critical illness insurance policy — a safety net that can provide both financial security and peace of mind.

What Is Critical Illness Insurance?

According to a 2019 study, two-thirds of Americans who filed for bankruptcy did so because of medical debt. Many people mistakenly believe that their health insurance policies will cover non-medical expenses, like their transportation needs or lost wages, only to be faced with overwhelming debt.

For those without a Health Savings Account or emergency savings, the costs involved with a health emergency can quickly drain their accounts. Families who opt for a high-deductible health insurance policy are particularly vulnerable, since they may need to pay thousands of dollars out-of-pocket before their policy even starts to cover costs. 

Critical illness insurance was created to address this problem by providing a lump sum that policyholders can use however they want. Families have the ability to address whatever expenses come up as a result of an unexpected health emergency.

Critical illness insurance is a supplemental policy that can be purchased in addition to a traditional health insurance policy. Typically, critical illness insurance covers:

  • Heart attack
  • Stroke
  • Organ transplants
  • Cancer
  • Coronary bypass
  • Paralysis
  • Coma
  • Alzheimer’s Disease

Like all other insurance policies, there are some limitations and exceptions; for example, some types of cancer may not be covered, and chronic illnesses are usually exempt.

Types of Critical Illness Insurance

Like other supplemental health insurance policies, critical illness insurance can be offered as either an individual policy or as part of a group health plan. 

According to the Society for Human Resource Management, about 25% of companies offer critical illness insurance as part of their benefits packages. Group health plans can mean that, as the employer, you will pay for some or all of the cost of the policy. Otherwise, the employee is responsible for paying for the entire premium, though they can still benefit from the group rates.

In many of these cases, critical illness insurance is portable. This means that when employees leave the company, they can opt to pay for the full policy price on their own so that they don’t lose coverage.

If an employee is diagnosed with a covered illness — group health care plans usually cover heart attacks, strokes, cancer or major organ failure — the insurer will pay out a lump sum that they can then use as they see fit. And since these policies are provided through you, the employer, employees can enroll and be automatically qualified for coverage.

If you’re unable to offer a group health plan, your employees can choose to purchase individual critical illness insurance. These policies are offered by a variety of insurance companies, so it’s worth recommending to your employees to shop around for the best pricing.

Individual critical illness insurance policies offer a variety of benefit amounts, from $5,000 up to $100,000. Higher payouts translate to higher premiums. As long as the policy is purchased before the policyholder turns 70, coverage tends to be guaranteed for their lifetime, though it’s worth noting that payouts after 70 are reduced by half.

How Much Does Critical Illness Insurance Cost?

The price of a critical illness insurance policy is dependent on your employee’s personal risk of developing health issues, the variety of illnesses they want covered and the amount of payout. Typically, the younger and healthier a person is when they apply for coverage, the lower the premiums. Most insurance companies provide free quotes to employers, so it’s worth reaching out and talking to a representative who can provide you with accurate information.

Is a Critical Illness Insurance Policy Right for You?

When deciding whether or not to purchase a critical illness insurance policy, your employees should consider these factors:

  • Family history. Does cancer run in the family? What about heart disease? A person’s family medical history can point them to the illnesses they may be at most risk of developing. Talking to a healthcare provider can help provide an accurate assessment of their future health. If they are predisposed to severe and sudden health issues, such as heart attacks or strokes, critical illness insurance may be right for them.
  • Emergency savings. What does their rainy day fund look like? Expenses due to severe health issues can quickly add up to tens of thousands of dollars that an employee will be expected to cover out of pocket. Considering that 25% of Americans don’t have any emergency savings at all, critical illness insurance could be the financial safety net needed to keep out of overwhelming debt.
  • Health insurance deductibles. Your employee should look at their health insurance policy and the amount of their deductible. In the case of a medical emergency, they’ll be expected to pay up to that amount before their insurance takes over covering costs. And while high deductibles can save money on premiums in the short-term, it means policy holders could be faced with paying thousands of dollars. Critical illness insurance can cover the deductible amount so the employee isn’t on the hook for it.

Critical illness insurance provides a financial safety net that can help prevent employees and their families from falling into massive debt. It can be used to pay for anything they need while they’re receiving treatment or recovering from an illness, whether that’s groceries, a mortgage or additional medical expenses. Offering critical illness insurance as part of your benefits package can help you recruit competitive hires and reduce the amount of turnover. It is not only a way to set up your employees with a safety net, but it also signals your investment in their well-being and peace of mind.

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