Critical illness insurance policies basicsArticle added by Lisa Rivera on October 29, 2010
Lisa Rivera

Lisa Rivera

Boca Raton, FL

Joined: October 28, 2010

Editor's note: This article provides a detailed primer on critical illness insurance for consumers interested in this popular product.

People are living longer nowadays. Although survival levels are rising for numerous medical ailments, a debilitating illness can cause economic ruin once loss of income due to inability to work and medical expenses are tallied.

A 2008 study from the American Cancer Society (ACS) and the Kaiser Family Foundation found that 20 percent of people with medical insurance are unable to afford cancer treatment. The study discovered that 12 months of treatment methods for blood cancers like leukemia climbed to $1 million in 2008, which would cap the boundaries of most health insurance plans.

Despite having sophisticated medicine and medical health insurance coverage on your side, if you have a life-threatening condition, there's a likelihood that you will be unable to afford the treatments prescribed and needed. Critical illness insurance will assist.

How much does critical illness cover?

Critical illness insurance coverage provides a check in the event you live through a critical sickness included under the plan agreement. A person doesn't need to be disabled to receive their payment. And, contrary to disability insurance plans, you do not have to be employed to receive these benefits. For instance, Aflac offers a specific critical illness plan for occupants of most states that pays $10,000 to $30,000 in the event that an individual develops a covered condition. The plan then offers another $5,000 benefit for any recurrence of the condition or for a new covered condition after 180 days.

Critical illness insurance policy payments are commonly paid in a single payment and can be used however you would like — for health care-related bills, a mobility device, retrofitting your home, paying your home loan or other household bills, home health care or even a Hawaiian vacation. Health conditions that will meet the criteria ordinarily include serious injuries, diseases and major surgeries.

Critical illness insurance plans can be bought in many ways, including:
  • Through an individual policy
  • Within employment benefits — most likely paid by a employer benefits or even deducted from your paycheck — in which you actually pay the monthly premiums and they are subtracted from your paycheck
  • As a supplement to a health insurance plan
  • For a supplement for a life insurance plan
Two forms of policies are generally obtainable through a job. In the first type, a main policy is supplied to the employer, and staff that chooses to enroll receive certificates within that master insurance policy. The second type is worksite policies that tend to be individual policies available to staff at the workplace. Almost 90 percent of critical illness policies are bought through workplace benefits.

A number of insurance carriers bundle critical illness coverage into groups, and you can make claims in multiple categories. For example, one group may offer excellent coverage for cancer-related issues, another group could cover heart-related conditions, and a third group may cover organ transplants, renal failure or severe burns. It is possible to obtain a plan that pays for a single category of ailments or even a plan which covers all three condition categories.

For instance, let's say you acquire a plan that has various groups and you suffer from a severe stroke. You then receive 25 percent of your benefit sum. The remaining 75 percent could take care of another illness or another stroke while the policy is in force.

Critical illness insurance policy restrictions usually range from $10,000 to $1 million. The National Association for Critical Illness Insurance (NACII) proposes identifying the amount of protection a person will need by adding these two figures:
  • Two to three years’ total of your home loan obligations or rent
  • The sum of your respective outstanding credit card debt
Examine your policy's waiting period — referred to as the "elimination period" — which is the amount of time you wait following diagnosis before receiving the insurance policy settlement. For some policies, if you should die from your critical illness during the elimination period — and have no particular rider to protect against that — no benefits will be paid to you or your estate.

Be sure you understand exclusions and boundaries before purchasing a policy. Regular exclusions consist of critical illnesses which are diagnosed while in your plan's waiting period, self-inflicted injuries, and suicide or illness caused through illegal activity. Some common additional omissions include balloon angioplasty surgery, pre-malignant conditions or even conditions with cancerous potential, and the majority of epidermis cancers.

Nearly all critical illness policies are issued for a minimum of two years and, at most, 20 to 25 years. Most providers will not sell policies to those over age 65. In the event you buy a policy during your early 60s, the fee will probably be steep.

Some insurance companies promote supplemental critical illness insurance plans only to clients that acquire major medical policies.

While individual and worksite plans are clinically underwritten — meaning the fee is predicated based on personal factors such as medical history — in the event you purchase insurance from the group plan, it will be considered "guaranteed issue." In group plans, the amount is established by your age and the number of employees the company has, without any health-related questions being asked. Nonetheless, group policies will exclude coverage for almost any ailments you experienced prior to the policy taking effect.

Should you purchase an individual plan, you will likely have a telephone meeting with your insurer's underwriting department, in addition to oral fluid, blood and urine testing. For those who have a heart condition or family members with heart conditions, you may be required to have a medical evaluation, EKG, paramedical exam, treadmill electrocardiogram (TEKG) and, if you are a tobacco user, a chest X-ray.

Critical illness insurance coverage is valued based on a number of criteria. Insurers consider age, height, weight, family health history, nicotine use and current illnesses that could result in more severe conditions. An individual critical illness plan typically starts at approximately $21 per month for a 40-year-old male non-smoker and increases from there, depending on age as well as the volume of the benefit chosen. Females could possibly be priced at an additional 10 percent to 15 percent.

A true group critical illness insurance policy costs approximately $8 for a non-tobacco using 18- to 24-year-old employee. A worker in their 40s could pay approximately $40 per month. Someone between ages 60 and 64 could pay $230 monthly for the same coverage, and rates increase with age.

In comparison, employer-based critical illness insurance policies have stage monthly premiums that are dependent on your age at time of issue and don't increase. Someone that enrolls at age 40 might pay $22 for a lifetime, and an individual who applies at age of 60 may pay $66 for a lifetime.

When it comes to family history, you might be declined for an individual policy if you're a woman under age 50 who has two or more immediate family members who've been clinically diagnosed with breast cancer. This could include a mom, a sister or an aunt. With group policies, if you have two or more immediate relatives with a history of cancer, heart disease or kidney disease prior to the age 65, you are likely to be billed more for the policy, rejected, or have your maximum benefit dropped to a lower sum — possibly $50,000 — depending on the insurer.

With personal plans, you make premium payments until the plan pays out the maximum benefit. Group plans may end upon termination of employment or may be transferred towards a group trust. At that time, you would pay your premium directly to the insurance company. In the last circumstance, you'll pay your premium right up until the insurance policy pays out the primary sum insured.

Should you die of a heart attack and your highest benefit is $50,000 — and the price of treating you for a heart attack reaches the full max benefit — the insurer will likely pay out the complete maximum and then terminate the plan.

Paying the bill

The insurance company will most likely cancel your plan if monthly premiums are not paid, if the highest payment is reached, if you pass away, or if you ask for termination.

You cannot get your money back in the event you terminate or if you do not get sick, unless you purchase a critical illness plan which includes a "premium return" or "ROP" option. For example, if you die during the plan's elimination period and also have a ROP death rider, any premium you paid is going to be returned to your beneficiary listed on your plan or your estate. To get the returned premium, you cannot perish from the ailment or in the event that is omitted or that is not defined in the plan. For instance, if your plan does not cover an aneurysm and you perish from one, your family members cannot take benefit from the ROP death rider. Should you die due to an excluded illness such as skin cancer, premiums won't be returned.

The NACII suggests shopping for the following in a critical illness plan:
  • Lump-sum benefits, which tend to be paid out in the event that you are diagnosed with a common devastating illness
  • Transport benefits, which assist you in covering the expense of traveling to and from a medical center for treatment
  • Coverage for common diagnostic tests, like mammograms, pap smears and colon screenings
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