Critical Illness Insurance, Is It Worth the Cost?

Critical illness insurance is praised as a potential solution for covering the costs associated with heart attacks. This type of coverage has its advantages, though it’s more suitable for a specific group of people.

According to 2022 data from the American Heart Association, someone in the United States experiences a heart attack every 40 seconds.

The cost of a heart attack can be staggering, with uninsured patients facing a median hospital care cost of $53,384, as per a 2017 study in Circulation.

Considering the rising expenses of medical care and inflation, that number is likely even higher in 2023. So, critical illness insurance can provide financial support in such situations.

What is critical illness insurance?

Critical illness insurance serves as a valuable solution for many Americans who find their medical insurance inadequate to cover all expenses.

It acts as a bridge between your primary health insurance and out-of-pocket costs, making your recovery more manageable financially and taking care of additional expenses that may arise due to illness.

When you have critical illness insurance, you’ll receive a cash payout if you experience a serious illness.

The coverage typically includes major illnesses like heart attacks, strokes, and cancer, as well as organ or kidney failure.

The money from the payout can be used at your discretion – you may allocate it towards day-to-day expenses, deductibles, copays, and medical procedures.

Some individuals use the funds for rehabilitation, in-home care, and lifestyle expenses to improve their health, like enrolling in programs to quit smoking. Others may prioritize child care or cleaning services to aid in their recovery process.

The flexibility of critical illness insurance empowers you to address your specific needs during challenging times.

How critical illness insurance fits into a financial plan

According to Maxwell Schmitz, a licensed accident and health or sickness agent and CEO of Yetworth Insurance Solutions, critical illness insurance serves as a safeguard to avoid depleting your savings to meet your health insurance deductible.

If your health plan entails a $10,000 deductible, you could purchase a corresponding $10,000 critical illness policy to cover that expense.

One of the primary advantages is the lack of a waiting period, setting it apart from long-term disability insurance, which typically requires a three-month waiting period.

However, critical illness insurance does have some limitations. It will not provide a payout if your illness is not deemed serious, and it does not cover pre-existing conditions.

This underscores the importance of applying for coverage before experiencing any illness to ensure eligibility for benefits.

The cost of critical illness insurance

As you age, premiums for critical illness policies tend to increase. It’s advisable to apply for coverage as soon as you recognize the need for it.

According to Schmitz, the most popular critical illness policies are valued at $50,000.

For instance, a 30-year-old man residing in Iowa could expect to pay approximately $29 per month for a critical illness policy from Assurity, while a woman’s premiums would be slightly lower, around $25.

To put it in perspective, a healthy 30-year-old man might pay around $19 monthly for a 20-year, $500,000 term life insurance policy. In the event of his passing due to a heart attack or any other cause while the policy is active, the funds would go to his loved ones.

If your primary concern is replacing your income and alleviating the financial burden on your family after your passing, a life insurance policy should be a higher priority compared to critical illness insurance.

The best candidates for critical illness insurance

For individuals who are ineligible for disability insurance and may face financial challenges if they fall ill, critical illness insurance can serve as an affordable form of income protection.

This group may encompass stay-at-home parents, freelancers, or part-time workers.

Schmitz highlights that critical illness insurance could be particularly beneficial for those who usually cannot access traditional disability insurance.

Additionally, individuals with a family history of specific serious conditions, such as heart disease, might find critical illness insurance to be a prudent choice.

However, for others who don’t fall into these categories, it may be more advantageous to allocate their funds elsewhere, like enhancing a life insurance policy.

Opting for a rider

When searching for term life insurance, some companies offer a complimentary critical illness rider.

For permanent policies, you have the option to add a life insurance rider at an additional cost, which is often more affordable than purchasing a separate critical illness policy.

Similar to standalone policies, a critical illness rider becomes active upon diagnosis of a qualifying illness, and you have the flexibility to use the money as you see fit.

The predetermined sum of money outlined in your policy documents will be disbursed tax-free.

However, there’s a drawback. If you pass away while your life insurance policy is active, the insurer will deduct the critical illness rider’s amount from the final payout to your beneficiaries.

For instance, if you have a $500,000 life insurance policy with a $50,000 critical illness rider and experience a covered illness, you’d receive a $50,000 check, leaving $450,000 for your beneficiaries upon your death.

In the absence of a serious illness, your loved ones would receive the full payout.

It’s essential to note that critical illness riders can only be added to new policies and not to existing ones.

The decision of whether you need a critical illness rider depends on your health insurance coverage and the potential financial situation if you encounter unexpected medical expenses.

For some individuals, adding a critical illness rider to a permanent policy makes sense, especially those with high deductibles on their health insurance, such as self-employed individuals, providing additional protection in case of a major cancer diagnosis or stroke.

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