When you think of life insurance, you probably think of insurance policies that only pay out with the death of the policyholder. However, in the world of life insurance, there exist policies that go beyond your typical payout after death. What if a policyholder develops an illness that prevents them from working? This is where critical illness insurance comes in.
What is critical illness insurance?
Critical illness coverage (a.k.a critical and chronic illness coverage) is a lump sum benefit payment in the case the policyholder falls into a debilitating illness.
Because life insurance jargon is tricky, you should know that the phrase debilitating illness does not necessarily mean terminal. Instead, the insurer will define what they consider to be a debilitating illness in their policy (more on that later).
What does critical illness insurance cover?
Chronic illnesses are financially challenging due to medical bankruptcy and loss of wages. Luckily, critical illness coverage can be used to cover a lot of financial burdens, including:
- critical medical services
- lost wages
- treatments not covered by traditional policies
- daily living expenses
- transportation expenses (including making vehicles more handicap accessible or the costs of scooters and wheelchairs)
With these benefits in mind, it is important to note that this is one of the only life insurance policies where the beneficiary can also be the policyholder. So, you are basically investing in a low-cost plan that can help you while you are still living.
However, before you invest in this type of insurance, you should ask what illnesses critical illness insurance covers. While there are typical illnesses – heart attacks, stroke, some cancers, organ transplants, etc. – that critical illness insurance will cover, a more concrete answer can usually be found in the policy or the rider. There are instances where certain cancers or chronic illnesses may not be covered, so make sure you review the types of illnesses covered by the plan to ensure coverage.
How does critical illness insurance work?
Often critical illness insurance is confused with an accelerated death benefit (ABR). However, an ABR is typically for someone who is diagnosed with a terminal illness instead of a critical or chronic illness. Therefore, individuals who choose an accelerated death benefit policy will have less than a year or two to live, and they can use a portion of their policy’s benefit for medical treatments.
As mentioned earlier, critical illness insurance is specifically for people with a chronic or critical illness. If the illness is not terminal, you are likely not going to qualify for an accelerated death benefit policy. To learn how the critical illness policy works, there are three main factors to consider.
It Doesn’t Have to be a Standalone Policy
A definitive aspect of critical illness insurance is the ability to hold one or more insurance policies. Critical illness insurance can either come as its own standalone policy or it can be attached to an existing life insurance policy, often called a rider – meaning, something extra attached to an existing insurance contract. While standalone policies tend to have higher coverage, they also have higher premiums. Additionally, when these standalone policies expire, you’ll have to go through a lengthy process that requires a medical exam. On the other hand, if it is attached to an already existing life insurance policy, then it tends to be less comprehensive. However, it renews on its own without the policyholder having to complete a medical exam.
The Payout Benefit
If you have critical illness coverage, then you are eligible for one tax-free, lump-sum payment after being diagnosed with a critical illness covered under your policy. There are cases when you may only receive a partial payment, but this is dependent on the illness or injury. Because you can apply for critical illness cover after being diagnosed, it is important to review the policy beforehand so you can maximize your payout.
Additionally, the payout is provided to you directly, with no restrictions on how you can use it. You can use it for medical bills, in-home care, mortgage, everyday living expenses, etc.
Critical Illness Insurance Cost
Critical illness insurance varies based on age, lifestyle, and policy type. Average pricing can run anywhere between $25 to $100 per month. The best way to get an accurate estimate is to reach out to TDK’s insurance advisors.
Do I need critical illness insurance?
You might still be wondering, “Do I need critical illness insurance?” Well, let’s examine what other options you have.
Life Insurance
Life insurance is a must. It is something that cannot be replaced by critical illness insurance. However, it can be complemented by it. Generally, life insurance will not provide you with benefits and payouts while you are still living. If you have a critical illness insurance rider, however, you can pay for your expenses while still ensuring security for your family.
Health Insurance
Health insurance can be expensive, but it is incredibly beneficial if you have been diagnosed with a critical illness. Though it is beneficial, health insurance does not cover everything, and it can be hard to qualify if you have already been diagnosed.
On the other hand, critical illness insurance can complement health insurance. Health insurance pays a portion of your medical bills while your critical illness policy can help cover the rest of your bills and expenses.
Disability Insurance
As with health insurance, critical illness insurance can help fill in the gaps of disability insurance. However, disability insurance has very complicated stipulations for what is covered and what is not covered. So, it is possible that you can qualify for a critical illness policy but not for disability insurance.
Supplement with Critical Illness Insurance
At the end of the day, critical illness insurance is not something that can replace its other options. Instead, it is best used with life insurance, health insurance, and other insurance policies to give you as much coverage as possible. It is great supplemental coverage that is affordable, protects you and your family, and gives you peace of mind.
