Critical Illness Insurance
Lump Sum Benefits When Battling Illness
Critical Illness Insurance | What You Will Discover
What is Critical Illness Insurance?

Who Should Buy Critical Illness Insurance?
Critical Illness Insurance is suitable for anyone looking to secure financial protection against the high costs associated with treating and managing serious illnesses. However, it is particularly beneficial for:
- Individuals with a family history of critical illness
- Those without sufficient savings to cover unexpected medical expenses
- People with dependents who rely on their income
- Individuals with high-deductible health plans seeking additional coverage
Examples of People Who Should Consider Purchasing Critical Illness Insurance
FAMILIES
For families, the financial impact of a critical illness can be devastating. With medical bills, ongoing care costs, and potentially lost income, the lump-sum benefit from critical illness insurance can help keep a family’s finances stable during challenging times.
High Deductible Health Plans Participants
Individuals enrolled in high deductible health plans may face significant out-of-pocket costs before their health insurance begins to pay. Critical illness insurance can provide a financial safety net for these upfront costs.
Small Business Owner
Small business owners often lack the extensive health benefits available in larger corporations. Critical illness insurance can offer crucial financial support, enabling them to focus on recovery without the stress of business expenses.
Why Do People Buy Critical Illness Insurance?
The main reasons people purchase critical illness insurance include:
- Financial security: Offers peace of mind knowing that in the event of a critical illness, financial needs will be covered.
- Covering high deductibles and out-of-pocket expenses: Helps manage the costs not covered by standard health insurance.
- Protecting savings and assets: Prevents the need to deplete savings or sell assets to cover medical bills and living expenses.
- Maintaining quality of life: Allows for additional treatments, home modifications, or other needs that may not be covered by health insurance.
Want to Discuss How Critical Illness Insurance Can Protect You?
Critical Illness Insurance Coverage and Benefits
Critical illness insurance policies are fairly simple and straightforward. Most policies pay a pre-determined cash amount (the face amount) to the policy owner/insured in the event he or she suffers from a critical illness as outlined in and covered by the policy.
The benefit is paid as a lump-sum amount, which is received income tax free by the insured. Payment is usually based on the onset date—the date on which testing was done that led to the diagnosis of a covered illness. The policy will typically specify that the diagnosis of any covered critical illness must be made by a licensed physician or specialist.
Conditions Covered By Critical Illness Insurance
Typical conditions covered include cancer, heart attack, stroke, kidney failure, major organ transplant, and more. Coverage can vary by policy, so it’s important to review the specific conditions listed.
Benefit Amounts and Payments Provided By Critical Illness Insurance
Benefit amounts can range significantly, often they range from Lump-Sums between $5,000 to $1,000,000 depending on the policy terms and premiums.
What Can Critical Illness Benefits Be Used For?
The benefits from critical illness insurance can be used for a variety of expenses, including:
- Medical treatments not covered by health insurance
- Daily living expenses during recovery
- Paying off debt or mortgages
- Funding travel for treatment
- Supplementing lost income
How is Critical Illness Insurance Different From Other Types of Health Insurance?
Critical illness insurance is different from most other forms of health insurance. Traditional health insurance is designed to help pay for covered medical expenses from an illness or injury. Under managed care health plans, the insurance company pays the provider directly for covered services. Under expense-incurred medical plans, the insurer may pay the health care provider directly or reimburse the insured for covered services. Disability income policies—another form of health insurance—pay insureds some portion of their salaries if a disability affects their ability to work and earn a wage.
By contrast, critical illness insurance is not a “reimbursement of expense” product. It does not require a deductible. It is not based on one’s inability to work. It is not based on pending death. Rather, it is designed to deliver a lump-sum cash payment when the insured is diagnosed with a qualifying illness. The qualifying illness triggers the policy’s benefit. The benefit is paid directly to the insured.
To better understand critical illness insurance and to provide context for its purpose and application, it’s helpful to compare it with other types of health insurance coverage.
Critical Illness vs Major Comprehensive Medical Insurance
Major and Comprehensive Medical Insurance covers diagnosis and treatment for nearly any illness or condition a person might contract, including critical illnesses. However, these policies are subject to deductibles, co-payments and co-insurance. Critical Illness Insurance is not subject to any copayments, coinsurance, or deductibles.
Instead, these policies pay a lump-sum benefit the insured can use however he or she chooses. It is paid directly to the insured and can be used for indirect and nonmedical costs associated with recovery, pay personal expenses or even pay for experimental treatments other policies don’t. Traditional health insurance pays only for covered services, and it does not pay for any indirect or nonmedical expenses. Experimental treatments may or may not be covered under traditional health insurance, but critical illness insureds can use their lump-sum benefit to cover this type of treatment.
While critical illness is less expensive than traditional health insurance, it is more restrictive because it only covers the illnesses and conditions listed in the policy contract.
Critical Illness vs. "Dread Disease" Coverage
Critical illness insurance is sometimes referred to as “dread disease” (or “specified disease”) insurance but it is more comprehensive than these types of plans.
Dread disease policies provide narrow coverage for only one of a few named causes of illness, such as cancer only or heart attack and stroke only; they pay when the insured is diagnosed with the covered disease or, in some cases, if the insured is hospitalized for the disease. Benefits under a dread disease policy are intended for the care and treatment of the covered disease; payments can be made on an expense-incurred basis or a per diem basis, or they can be paid as a lump sum. Coverage under dread disease policies is obviously very limited but also relatively inexpensive.
By contrast, today’s critical illness insurance policies cover a number of named diseases and conditions, sometimes as many as 20 or so, paying their benefits when the insured is diagnosed with any of the named conditions or occurrences. In addition, critical illness insurance is more comprehensive and flexible, offering more attractive and useful features. These policies are also more costly than dread disease insurance.
Like critical illness insurance, dread disease policies do not provide coverage for any disease or condition diagnosed prior to purchasing the policy. Generally, a person purchases a dread disease policy if he or she has reason to believe that a disease or condition (e.g., cancer, heart attack, or stroke) is likely based on family history, whereas critical illness insureds want to be protected from a number of illnesses whose direct and indirect costs could create severe financial distress.
Critical Illness vs. Disability Income Replancement Coverage
Most employers offer their workers some type of disability insurance, which comes in two forms—short-term disability and long-term disability coverage. Disability income insurance is so called because it replaces some portion of the disabled insured’s income, allowing him or her to continue, at least to some extent, to pay bills and maintain a standard of living close to that before disability. It replaces a percentage of pre-disability income for a specified period of time.
Short-Term Disability Insurance
Short-term disability insurance pays a percentage of an employee’s income—typically 60 to 70 percent—during the early period of an illness or disability. However, benefits begin only after any sick leave has been exhausted. Benefits are provided on a per disability basis and do not begin until after a waiting period of typically 0 to 14 days. The benefit duration may be anywhere between three months to two years.
Long-Term Disability Insurance
Long-term disability insurance provides a monthly benefit to employees who, due to illness or injury, are unable to work for an extended period of time. After a longer waiting period—60, 90, or 180 days—a percentage of the employee’s income (again, 60 to 70 percent) is paid for a stated number of years or until retirement or death.
The similarity between disability income and critical illness insurance is that benefits are paid directly to the insured, and the money can be spent however the insured desires. However, there are three primary differences between these coverages:
- The income benefit under a disability income policy is based on a percentage of the insured’s salary, while the critical illness benefit is based on the amount of coverage purchased, which again, can range from $5,000 to $1,000,000 or more.
- A disability income benefit is paid in increments during the time the insured is disabled; the critical illness benefit is paid in a lump sum.
Critical Illness vs. Long-Term Care Coverage
Long-term care (LTC) encompasses a wide range of services, medical and nonmedical, provided over a long period, required by people who have lost some capacity for self-care because of a disabling condition or a chronic illness.
Benefits under LTC insurance policies are triggered when the insured requires assistance with activities of daily living (ADLs.) All LTC policies must list the ADLs that will trigger benefits and typically, the need for assistance requires assistance with at least two of them.
ADLs include:
- bathing
- eating
- toileting
- dressing
- continence
- transferring (getting out of a bed or chair)
- Mobility
An individual who suffers a covered critical illness may require long-term care but to be eligible for long-term care benefits, one doesn’t require the diagnosis of a specifically named illnesses.
Critical illness coverage is paid only upon diagnosing of a specifically named and covered illness. In addition, the average issue age for a critical illness insurance policy is younger than that for a long-term care insurance policy. Individuals can own long-term care insurance policy for the rest of their lives after it is purchased while critical illness is only renewable until a certain age (65 to 67.)
How To Buy Critical Illness Insurance?
You can purchase critical illness insurance through us here at Decision Tree Financial. We offer this often overlooked insurance coverage from multiple insurance carriers. It can be purchased as either an individual policy or, if you own a business, through a group insurance program we can set up for you and your employees.
Group Critical Illness Through Decision Tree Financial
Critical illness insurance can be made available, along with other benefits as a true group insurance plan to employers and businesses that want to provide their employees with additional health insurance coverage options.
What constitutes a group is defined by state insurance law. Typically, a “group” is two or more people, although some states recognize one person as a group for the purposes of securing health insurance. However, in no state may a group be organized for the sole purpose of obtaining insurance coverage. The insurer may also require a minimum number of participants for group critical illness coverage, such as five or ten.
Supplement Group Plans
Critical Illness Through an Individual Policy
If employer-provided or sponsored critical illness is not available or doesn’t provide the desired amount of coverage, an individual can apply directly to an insurance company for an individually issued policy. The benefit amounts available for individual critical illness policies are usually higher than for group policies; however, unlike group coverage that is issued with no or very simple underwriting, individual critical illness policies do require assessment of an applicant’s risk factors, including:
- age
- gender
- physical condition
- personal and family health history
- health habits such as alcohol and tobacco use
The amount of coverage, the premium, and the willingness of an insurer to issue an individual critical illness insurance policy depends on these risk factors. And remember: the risks are evaluated based on the probability of the proposed insured being diagnosed with a covered condition, not the outcome of the condition (such as death or disability).
Because critical illness insurance is considered to be an accident and sickness or health policy, the premiums an individual pays are not tax deductible; however, the benefits are received tax free.
Buying Critical Illness Insurance as a Life Insurance Policy Accelerated Benefit Rider
Critical illness coverage is also available as a rider to a life insurance policy, both permanent and term. Such riders provide for the accelerated payout of some portion of the policy’s death benefit if the insured is diagnosed with a critical illness, as listed or specified in the rider. Usually, the amount of the accelerated critical illness benefit is 40 to 75 percent of the policy’s death benefit. If and when needed, the insured can elect to take the accelerated benefit to use in any way he or she wishes, or can forego the benefit and allow the full policy face value to be paid to the beneficiary at death.
Any portion of the critical illness benefit paid during the insured’s life will be deducted from the underlying policy’s death benefit. Upon the insured’s death, the beneficiary will receive an amount equal to the death benefit less the accelerated benefit. If the full amount of the policy’s death benefit was taken for a qualifying illness, the policy would terminate at that point.
It should be noted that stand-alone CII policies are usually filed as health insurance products, while a life insurance rider that accelerates the policy’s death benefit for a critical illness is an element of the life insurance product filing.
One such term life policy that provides a critical illness benefit is the Transamerica LB Term product that you can get a quote on right now from Decision Tree Financial’s Free Online Life Insurance Quote Tool.