Critical Illness Insurance

Critical Illness Insurance

Critical Illness Insurance | What You Will Discover

What is Critical Illness Insurance?

Critical Illness Insurance

treatment and care, critical illness insurance provides financial assistance with cash payments paid directly to the policy owner when there is a covered claim. The benefits these policies provide can be used however the policy owner wants to use them!

Who Should Buy Critical Illness Insurance?

Critical illness insurance is one of the most needed yet least owned insurance coverages available. Where many people understand the need for the financial protection provided by products like comprehensive medical insurance, life insurance, and disability insurance, few people consider the economic impact and stress created when an individual has a significant health event and survives!

Critical illness insurance provides cash benefits that will prevent the financial hardship common with the diagnosis of a serious illness. The benefit provided by this additional coverage can be used in anyway the policy owner desires which creates choices, flexibility, and peace of mind.

Examples of People Who Should Consider Purchasing Critical Illness Insurance

FAMILIES 

With Critical Illness Insurance, families may have peace of mind knowing they’ve done the right thing to keep the house running as smoothly as possible if a member suffers from a heart attack, stroke or cancer.

High Deductible Health Plans Participants

High deductible health insurance plans are significantly less expensive than one with a lower deductible. A Critical illness policy as part of a comprehensive health care can be a less expensive solution to keep health care costs in check.

Small Business Owner

The cash provided by a critical illness policy can help a business stay in business if the owner or a key-employee suffers from a heart attack, cancer or stroke.

Why Do People Buy Critical Illness Insurance?

Most people understand the need for traditional health insurance. Though it can be expensive, the support these policies provide helps to offset the cost of medical care, including hospitalization, surgeries, tests, and prescription drugs. However, what people may not know—but might come to realize—is that traditional health insurance policies like those aquired by employees through their work or the “Obamacare” (ACA) marketplace have significant co-insurance and deductibles that need to be paid by the insured before coverage is fully provided. In addition, these major medical insurance don’t cover the indirect costs associated with an illness or medical condition.

For example, comprehensive medical insurance does not cover the loss of income one might experience while sick and during recovery. They won’t pay for personal expenses for necessities like groceries, mortgages, utility payments, car payments, auto or homeowners insurance, credit card payments, or other recurring expenses during this time.

Depending on the seriousness of the illness, many will seek the best care possible but major medical insurance doesn’t provide coverage for any travel and lodging expenses needed to visit these medical establishments.

Even with medical insurance, the costs of a major medical diagnosis or event can become a tremendous financial burden.

Critical Illness Insurance can provide the additional financial support needed during a very difficult time.

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

The number and types of conditions covered by critical illness policies vary widely from insurer to insurer and from policy to policy. They can range from as few as 4 or 5 to as many as 20 or so. The most commonly covered conditions are those that are also the leading causes of death: cancer, heart attack, and stroke. Most of the claims paid under critical illness insurance policies are for these conditions.

However, it’s also common to find critical illness insurance policies that cover not only the three “core” critical conditions but a wide range of others as well, such as heart (and other major organ) transplants, kidney failure, blindness, deafness, and coma. Some also include “quality of life conditions,” such as Alzheimer’s disease, Parkinson’s disease, and multiple sclerosis. The conditions, illnesses, and diseases that critical illness insurance policies cover are typically life-threatening or life-altering.

IMPORTANT CONSIDERATION:

A critical illness policy covers only the conditions and illnesses specifically named in the policy. The policy will not pay benefits for any condition or illness not named, regardless of how critical or life-threatening it may be. It is important to understand what the policy will stipulate a definition of each covered condition and a Decision Tree Financial insurance advisor can help you understand the choices you have when choosing a policy.

Benefit Amounts Provided By Critical Illness Insurance

The cash benefit payment under a critical illness policy can range from as little as $5,000  to as much as $1,000,000. These amounts depend both on the amount of coverage a person is willing to purchase and the amount an insurer is willing to write.

The higher amounts are usually available with individual policies and some life insurance policies with accelerated benefit riders. Under an individual policy, the insured can select the benefit amount he or she wants. Under group insurance or a voluntary benefit critical illness insurance plan, the insurance company usually offers a pre-set “baseline” benefit amount, such as $10,000 or $25,000, and then may allow employees to select greater amounts—say, in $1,000 increments—based on their individual needs.

Benefit Payments Provided By Critical Illness Insurance

Critical illness insurance policies also vary in how benefits are paid. While some critical illness policies terminate when the first claim is filed, and the benefit is paid, others provide multi-payments as long as the insurance remains in force. For example, if an insured is diagnosed with cancer, receives a benefit under their policy, undergoes treatment, and survives, while still paying their insurance premium, they could receive an additional benefit if in two years they suffer a heart attack. Some critical illness policies can be structured to pay again upon the diagnosis of a second covered critical illness.

A key feature of critical illness policies is benefits are not dependent on or coordinated with, other insurance payments!

This is to say the payment is not reduced due to other insurance coverage or employer-provided payments. The money received from a critical illness insurance claim is 100% independent of any other coverage and is money that can be used by the insured any way they chose.

What Can Critical Illness Benefits Be Used For?

Benefit payments under a CII policy can be used to pay medical expenses not covered by insurance, such as copays or coinsurance, expenses incurred before the deductible has been met, and other out-of-pocket costs. Benefit payments can be used to pay for experimental or alternative medical treatments or the services of out-of-network providers.

However, CII benefit payments do not have to be used to cover medical expenses. They can be used to cover utility bills, or to buy groceries, or to pay someone to perform household chores. The benefit is a tax-free cash sum—no strings attached—and the insured decides how and when to spend it. Critical illness insurance can be considered a safety net if the insured experiences a covered illness or condition and is not able to meet routine financial obligations. This brings peace of mind, and allows the insured to focus on getting well.

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:

  1. 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.
  2. 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.

Talk to a Decision Tree Financial Professional About Critical Illness Insurance