Workplace Benefits
How Is Critical Illness Insurance Different From Other Plans?
Medical bills can be some of our largest expenses. A report by Salary Finance reveals that 32 percent of working Americans have outstanding medical debt, and 54 percent of people with medical debt have defaulted on it.
Medical insurance only goes so far in covering costs to treat a critical illness, like a stroke1 or heart attack, and disability insurance helps replace some of your pre-disability income while you recover. So, how do you pay for the expenses that medical insurance and disability insurance do not cover?
This is where critical illness insurance can help. It pays a lump sum of money directly to you to use on anything you want. Keep reading to learn more about critical illness insurance, and why it might be a smart addition to your health and financial planning.
What is critical illness insurance?
Critical illness insurance pays a lump sum of money directly to you, not to a healthcare provider, in the event of a serious illness, such as a heart attack, stroke, cancer diagnosis,2 or (in some cases) COVID-19.
That critical illness insurance payment can range from a few thousand dollars to up to $100,000, depending on the policy. The funds can go toward anything you need, like toward seeing a specialist, or if a medical insurance provider doesn't pick up the entire cost, or if rehabilitation sessions exceed what medical insurance allows. You can even use the money to pay off bills and buy food—you decide how to spend it. And while disability insurance may cover a portion of your pre-disability income while you're unable to work, you may still need extra funds to reduce financial strain on your family. That's what makes critical illness insurance worth considering.
How does critical illness insurance differ from medical insurance and disability insurance?
With medical insurance, a policyholder gets a certain amount of their medical costs paid for by the insurance company offering the plan. With disability insurance, the recipient gets a percentage of pre-disability base salary—usually up to 60 percent.
Critical illness insurance, on the other hand, offers a lump-sum payment based on the terms of your policy. In a nutshell, this product can supplement the reduced income that occurs when you're on disability and can help cover the additional expenses that medical insurance may not cover.
How can critical illness insurance help with financial planning?
With the average American family spending up to $5,000 in out-of-pocket medical costs yearly, critical illness insurance may help provide financial support at a low cost. Plan premiums vary, depending on your age, occupation, smoking status, whether it's a single or family plan, as well as your employer’s demographics. For example, a 40-year-old female nurse could pay between $25-$30 per month for a single plan benefit of $30,000. Bonus: Premiums for employer-sponsored plans tend to be a pre-tax benefit taken out of your paycheck, which reduces your overall taxable income.
Open enrollment is a good time to consider signing up for a critical illness insurance plan offered through your employer. Take our quiz to see if critical illness insurance might be right for you.