Is Critical Illness Insurance Worth It?

While health insurance should cover major medical care, it won't cover everything. What happens if you're struck by a major medical issue that keeps you out of work for months? The possibilities can be scary, but being prepared is the best strategy to protect your family in case the worst happens. Critical insurance is one way to pay for those unexpected costs. But is critical illness insurance worth it? That depends. Read on to understand the pros and cons to see whether you need this type of insurance.  

Understanding Critical Illness Insurance

The American medical system needs improvement. Americans may find themselves unprotected because of medical insurance gaps. Many Americans have discovered too late that their medical insurance won’t cover all expenses of a critical illness. 

Critical illness insurance can bridge the gap between your primary health insurance and out-of-pocket costs. It can help take care of costs you might incur as a side effect of getting sick and help you recover financially.

In most cases, critical illness insurance offers a cash payout if you suffer a serious illness. The policy will list specific covered illnesses. Common illnesses covered include heart attacks, stroke, kidney disease, organ failure or cancer. However, each policy varies by coverage and typically kicks in if you experience organ or kidney failure.

You can use the money however you like. You could use it to cover your day-to-day living expenses, medical deductibles, copays or uninsured procedures. You might also need the funds for rehabilitation, in-home care, child care or cleaning services. 

Who Should Get Critical Insurance? 

If you're the primary income earner in your family, critical insurance can be a good choice to protect your family financially. If you have a family history of critical illnesses critical insurance can give you extra peace of mind.  

For example, critical illness insurance might also be a good choice for those with a family history of heart disease. For everyone else, a life insurance policy or stronger health insurance may be a better option.

Why Should You Get Critical Illness Insurance?

Here are the reasons to consider critical illness insurance. 

Covers Medical Expenses Not Covered by Health Insurance

Critical insurance covers medical expenses not covered by your regular health insurance. Because you receive a lump sum payout, you can cover treatments not covered by your medical insurance or cover the deductible amount. For example, some health insurance plans have a $5,000 annual deductible. You could use critical illness insurance to cover this deductible and pay for at-home help, rehabilitation or other treatments. 

Critical illnesses that are usually covered under this type of insurance include:

• Heart attack
• Major organ transplant
• Multiple sclerosis
• Parkinson’s disease
• Stroke
• Cancer, usually limited to a life-threatening diagnosis
• End-stage renal failure

Can Help Cover Nonmedical Expenses 

If you get sick, you need to focus on treatments and recovery. You don't have time to worry about earning a living to pay for your mortgage, childcare, food, transportation, insurance or other ongoing expenses. Critical illness insurance can help ensure that you have the financial cushion to focus on recovery and not worry about paying bills or getting help when you need it most.  

Helps Maintain Financial Stability 

Overall, critical insurance helps maintain financial stability during a health crisis. While you might have an emergency fund or long-term savings, if you can avoid dipping into those savings, you'll protect your family's long-term financial stability. By protecting your retirement and emergency savings, those funds can continue to grow while you use critical illness insurance to pay for your living expenses and medical needs. 

How Much Is Critical Illness Insurance? 

How much critical illness insurance costs depends on your age and lifestyle. In general, critical illness insurance costs less if you're younger and you don't smoke. If you're a smoker, you can expect to pay around 50% more than a nonsmoker of the same age. Here is a table showing the average cost of critical illness insurance for $50,000 of coverage for a healthy nonsmoker.

How to Determine Whether Critical Illness Insurance Is Worth It

Now it’s time to determine whether critical insurance is worth it for you. Consider these factors.

Assess Your Current Financial Situation

Your current financial situation will have an impact on whether paying for critical illness insurance is worth it. If it's offered as a perk through your employer, it can't hurt. But if you need to pay for it out of pocket? If you have strong health insurance coverage, are reasonably healthy and have enough savings to cover at least a few months' expenses in case you are out of work, you might not need critical illness insurance. 

On the other hand, if you're younger or don't have a large savings cushion, the minimal monthly cost could give you peace of mind that you'll have the funds you need in case the worst happens. 

Evaluate the Likelihood of Needing Critical Insurance

Evaluating the likelihood of needing critical insurance can help you determine whether critical illness insurance is worth it. If you have no family history of the illnesses covered and are living a healthy lifestyle, your chances of needing critical insurance are low. You can speak with your primary care physician and understand your risks to see whether critical illness insurance makes sense. 

Compare the Cost of Critical Insurance With Potential Benefits

You'll want to weigh the cost of critical insurance with potential benefits to help you determine whether critical illness insurance is worth it. If you're 65 and preparing to retire, a strong health insurance plan may make more sense than spending $125 per month on critical insurance. However, if you don't have much savings and are younger, the $15 to $30 per month ($180 to $360 a year) may make sense to give your family an additional financial cushion.  

Consult With an Expert

Consulting with an expert such as a financial adviser with fiduciary responsibility can help you determine whether critical illness insurance is worth it. You can also discuss your financial and savings goals to develop a personalized plan that makes sense. 

Compare the Best Critical Illness Insurance From Benzinga’s Top Providers

If you decide that you need critical illness insurance, Benzinga's top providers can offer excellent value and a clear idea of coverage plans to get the protection you need. Compare plans here: 

Do You Need Critical Illness Insurance? 

Critical illness insurance is an extra financial cushion in case the worst happens. If you get one of the covered critical illnesses, you can use the lump sum payment for whatever you need, from medical expenses to a mortgage payment or childcare costs. While some employers offer critical illness insurance as an added perk, not everyone needs this insurance. 

If you have a low risk of developing a critical illness, strong health insurance coverage and some savings, it might not be necessary. In some cases, it can make more sense to put those funds into a health savings account. Consult your doctor and financial planner to make the best decision for your needs. You can also check out government-sponsored catastrophic health plans. 

Frequently Asked Questions