Do you need critical illness insurance?

Critical illness insurance is a type of supplemental insurance that is designed to help with the cost of treating certain serious illnesses. These illnesses typically require expensive medical treatment and procedures that may not be covered under a standard or comprehensive health insurance plan.

Employees can purchase an individual critical illness insurance plan on their own, or they can get group coverage through their employer if that option is available.

What conditions are covered?

Commonly, critical illness insurance covers:

  • Heart attack.
  • Cancer.
  • Stroke.
  • Major organ failure.
  • Coronary artery disease.
  • Coma.
  • Alzheimer’s disease.
  • Paralysis.

This list is not exhaustive, so it’s important to consult with the insurer to discover which illnesses are covered.

Most critical illness plans include dependent coverage for spouses, partners and children.

How does employer-sponsored critical illness insurance work?

Employers that offer group coverage for critical illness can choose to pay some or all of the insurance cost. Alternatively, employees can elect to pay the entire premium — in which case, the lower group rate still applies.

Here is how the claims process would go:

  • The employee is diagnosed with a covered serious illness by their health care provider.
  • The employee or an authorized party submits a claim to the insurer, along with the required supporting documentation.
  • If the claim is approved, the insurer pays it as a lump-sum amount (e.g., by check or direct deposit).

Employees can use the payment however they see fit, including for:

  • Deductibles
  • Co-payments.
  • Co-insurance.
  • Transportation.
  • Child care.
  • Home or car repairs.
  • Mortgage or rent.
  • Daily living expenses.

Most job-based plans are portable, meaning employees can continue coverage even if they no longer work for the employer.

How much does critical illness insurance cost?

According to the Society for Human Resource Management, “In general, employees elect an amount of coverage, typically a lump sum between $5,000 and $50,000, paid once the covered person has been diagnosed with a covered condition.” While premiums vary by state, they are often quite low, “ranging from $250 to $350 annually.”

Are there any potential drawbacks?

As Reuters notes, the older the individual, the higher the premium, as he or she becomes more vulnerable to serious conditions such as heart attacks or stroke, until “at a certain point, it may be difficult to secure coverage at all.”

Experts caution that insurance brokers might receive high commissions for selling supplemental products such as critical illness insurance. So you may want to ask them upfront how much they will receive for selling you such policies.

Additionally, there may be limitations on payouts for certain medical procedures, such as heart bypass surgery. Moreover, many critical illness plans have a waiting period. Once the policy becomes effective, it will not pay any benefits until the waiting period is over.

Studies show that employers are increasingly offering critical illness insurance, especially in the wake of the COVID-19 pandemic. Whether you should include it in your benefits package depends on the needs of your particular workforce.



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