Critical Illness Insurance
Feb 1, 2012
Based on statistics, we are more likely to survive cancer, heart attack, and stroke today due to advances in medical technology.
Ask yourself this: If you were diagnosed with cancer, heart attack or stroke, could you pay your bills for six months? Would you rather have a get well card or a check to cover these expenses? Critical illness insurance is meant to protect your savings account and provide peace of mind.
What is Critical Illness Insurance?
This type of plan could be considered a “Living Benefit” as the insured does not have to die to collect a much-needed benefit.
Critical Illness plans are designed to provide a source of income for the insured when they are diagnosed with a critical illness such as cancer, heart attack, stroke, and renal failure. This insurance pays a cash benefit directly to the insured upon diagnosis of a covered condition. The benefit amount can be used to pay for expenses, such as:
- Deductible on Health Insurance
- Co-Insurance
- Mortgage
- Utilities
- Car Payment
- Child Care
- Extended convalescence
- Travel expenses
- Treatments not covered by traditional health insurance
Why Do I Need This Coverage?
Most people will say that their health insurance is enough coverage. The health insurance pays the doctors, the hospitals, etc. It does not cover the mortgage payment, your regular monthly bills, and your loss of income while recuperating.
With the cost of health insurance plans today, many people are selecting plans with higher deductibles. The critical illness plan can also be used to cover the high deductible and co-insurance on a health plan. Statistics show that over 60 percent of medical costs related to cancer, heart attack and strokes are not covered by health insurance!
Everyone Needs This Coverage
Ask yourself the following: Has any family member ever had cancer, heart attack or stroke? Has any friend or co-worker ever had cancer, heart attack or stroke? If your answer is “yes,” were they able to pay their bills while they were recuperating?
Genetics plays a large role in one’s chances of being stricken with cancer, heart attack and stroke.
Smokers are in a class by themselves and should not think twice about purchasing this coverage.
Statistics show that smokers have a much greater chance of contracting a critical illness prior to age 65 than non-smokers. This coverage is necessary to anyone who uses tobacco products.
What Types of Plans are Available?
Currently, and I use this word because of the rapidly expanding marketplace for these plans, you have a Specific Disease plan, which generally covers one condition such as cancer; or a Critical Illness plan which generally covers cancer, heart attack and stroke (but could also cover up to 18 different conditions). You will then select either an indemnity plan, which pays a benefit amount based on treatment received, or a lump sum benefit, which pays upon diagnosis.
There are also life insurance plans that have a terminal illness or a living benefits rider. You must read and understand these riders before purchasing these plans. Generally, the terminal illness rider means you have to be diagnosed with a terminal condition and have less than 12 months to live. Only then may you file a claim. Life Insurance with a living benefits provision covers critical illness and chronic disease. The benefit amount you may take against the policy amount is based on the severity of your condition.
Return of Premium Provision
Most companies offer a plan that allows you to add a Return of Premium rider. This rider generally has a set period of time— for example: twenty years. If you pay all of your premiums, you will receive all premiums paid, less any benefit amount you may have received. Some plans may pay a prorated Return of Premium, which would pay a portion of the premiums back to you earlier than the full term of the plan. Be sure to check specific plan for details.
When Should I Purchase This Coverage?
NOW. Most products on the market today offer these plans to people age 18 to 65 with some companies actually making it available to age 85. The younger you are when you purchase the plan, the less expensive the cost. You need to be aware that some plans reduce your benefit at age 65 and some terminate coverage at age 75. As with most insurance plans, your good health allows you to qualify for this type of coverage. Most companies will disqualify you from coverage if you have had cancer, heart attack or stroke, but we are seeing some companies allow you coverage after a certain period of time, which right now is based in years! The key here is to be proactive and purchase the plan as soon as you are monetarily able. Most companies reserve the right to raise premiums— so by purchasing the plan at a younger age, you are receiving a good value for the coverage offered.
How Do I Determine the Amount Needed for my Benefit?
This coverage was designed to offer a cash benefit which you can use as you choose. This benefit amount is meant to protect your savings and provide peace of mind. With an “Indemnity” plan, you do not select a benefit amount as you are paid a “benefit” for each service rendered. These services typically include hospital confinement, radiation, chemo treatments, etc.
The “Lump Sum” plans pay a cash benefit directly to you upon diagnosis. Here is where we need to determine what amount fits your specific needs and budget. The rule of thumb is to cover six months of living expenses at a minimum. You also need to cover the deductible and co-insurance of your health plan. Together this will provide you the benefit amount needed.
Do I Qualify For Coverage?
Most offerings are “simplified issue” and they are generally for lump sum amounts under $70,000. Simplified issue is generally a few medical questions and with all “no” answers, you qualify. Benefits over $70,000 are subject to the underwriting process.
You may find “guaranteed issue” plans in the group setting, which is exactly that: guaranteed issue. These plans are generally for a smaller amount— $20,000 is the norm— then what you would get with a simplified issue plan.
You may even qualify if you have been diagnosed in the past with cancer, heart attack or stroke.
Am I Over Insured?
Let me ask these questions, How many benefit dinners have you seen being held in your community for someone that does not have enough money to cover their bills when they have been stricken with a critical condition? How many families have you seen struggle with their finances due to medical bills from a critical illness? How many folks have you seen lose their home due to being diagnosed with a critical condition? These plans are relatively inexpensive for the value they provide. They can be used by small or large business owners to help protect their business if they are off work due to a critical illness. No matter how good your health insurance is,it will not cover all expenses you will incur if stricken with a critical illness.
What if I Already Have Disability?
Disability plans pay you a benefit when you are off work a set amount of time, which is called a waiting or qualification period. Most plans vary from 14 to 90 days before a benefit is paid. When the benefit is paid, you are going to receive approximately 60 percent of your earnings. My answer is yes, you should have this coverage along with your disability.
Where Do I Purchase These Plans?
As this type of coverage becomes more visible and people are made aware of the benefits, then this product will be offered by everyone. We feel the agent plays a tremendous role in explaining the benefits of plans available and determining what is best for you. An agent is the professional in this picture and should be trusted to help. There are plenty of online sites making these plans available, but we still promote the use of a professional agent. You may also purchase plans through your workplace and you should do your homework on plans available if no agent is available to help. Associations and credit unions are another good source for purchase.
I understand that all these wonderful plans available have their benefits. If we bought every coverage available we probably would not have any cash left over! We need to really have a checklist of the items that are most important to us. We need to consider our age, family status and lifestyle and especially if tobacco use is a factor. My belief has been to purchase what I can afford and start as early as I could. I do understand the need to live within your budget and I also believe that you should consider needs over wants, more realistically. This is one of those insurance plans that really is a necessity.
About The Authors
Ed Mueller and Laura Spencer are partners of Life & Health Benefits Solutions LLC and founders of the Critical Illness Support and Awareness Network. They recently authored and published two books on critical illness, one to help educate agents on the types and value of critical illness plans, and the second to give solid unbiased information to consumers.
Together they have been providing agents and consumers a line of health, life and supplemental products for over 20 years with an area of expertise in the Critical Illness field. They recently launched a campaign to make 2012 The Year of Critical Illness Awareness. Visit us at www.cihelp.com or www.lahbs.com to view our informational videos.
