Critical Illness Insurance: What is it and what does it cover?

Critical illness insurance is a supplemental insurance plan that helps you to cover the cost of medical attention and the recovery period in the event you suffer an illness covered by the policy, including cancer or heart problems. Standard health insurance plans usually have deductibles and do not cover everyday expenses such as bills, food, education and transportation, expenses you will continue to incur during the time you are unable to work.

Critical illness insurance will help you to complement traditional coverage by providing a cash benefit that you can use as you see fit to pay for expenses relating to an illness that is classified as "critical," expenses that could otherwise have a serious negative impact on your finances.

Critical Illness Insurance: What is it and what does it cover?

Critical Illness Insurance: Article Contents:

What Is Critical Illness Insurance?

Critical illness insurance is a plan that provides coverage which grants you—directly and without any intermediaries—cash that you can use in the event that you suffer an illness that is classified as "critical" under your policy. Purchasing critical illness insurance can provide peace of mind for you and your family and help you to considerably reduce the financial burden during the time you are recovering and unable to work.

For example, how would you would pay your rent, bills, and other day-to-day expenses if you were to suffer a heart attack and undergo surgery, meaning you would be unable to work for several weeks or even months? This type of health insurance plan, known as critical illness insurance, will allow you to ensure that these expenses are covered so that you can concentrate on recovering.

According to the American Association for Critical Illness Insurance, many financial advisors recommend having coverage equal to two to three years of mortgage payments and bills for unpaid balances on credit cards. This is a good coverage plan that will give you peace of mind regarding bills during the time you are recovering.

Critical Illness Insurance and Obamacare

Critical illness insurance is a supplemental insurance plan. This means that it does not provide the minimum essential coverage outlined in the Affordable Care Act (ACA, also known as "Obamacare").

This type of insurance cannot be purchased through the HealthCare Marketplace. Under ACA, you are required to have the essential minimum coverage in order to avoid penalties at the end of the year. It is a good idea to have critical illness insurance, but it is important to know that it does not count as "essential minimum coverage." As such, purchasing one of these plans will not meet the requirements necessary to avoid the fine if you do not also have primary health insurance.

It is also important to be aware that the benefits included in Obamacare are to be used for primary health insurance, and not for critical illness insurance.

How Does Critical Illness Insurance Work?

Critical illness insurance pays you a cash benefit for all the expenses not covered by your primary health insurance depending on the monthly premium you pay. Just pay your monthly premiums, and your insurance company will pay you in the event that you are diagnosed with a critical illness covered by your policy. In contrast to many other plans, this type of insurance does not have deductibles or copays and you can maintain critical illness coverage as long as you wish or cancel it if you deem necessary.

During the time you are unable to work due to a serious illness, the benefits you will receive from your policy will help you to manage the lack of income derived from your inability to work. Most insurance companies allow you to spend the benefits you receive at your sole discretion. During the time you are receiving treatment or are in recovery, you can use the money to pay for, among other things:

  • Your deductible. Primary health insurance cover most of your medical expenses, but only after you have met the deductible, which can sometimes require you to pay thousands of dollars as a requirement to receive the coverage you need.
  • Health insurance premiums.
  • Copays and out-of-pocket medical expenses.
  • Prescription medications and other medicines.
  • Rehabilitation and treatment from specialists.
  • Travel expenses in the event that you cannot receive the care you need close to your home, including airplane tickets, hotel, etc. for you and a family member accompanying you.
  • Expenses for child care.
  • Credit card balances.
  • Payments to cover your rent or mortgage.
  • Household bills.
  • Food, gas and other everyday expenses.

You can request these benefits upon receiving an initial diagnosis of a critical illness that is covered under your plan. Though it is important to remember that a general rule for these plans is that they enter into effect 30 days after you purchase them. This means that you must receive the initial diagnosis at least one month after signing the policy.
You can keep your critical illness insurance even after you reach the age of 65 years, though the conditions of the policy automatically change at this point and your benefits will be reduced. Check the conditions with your insurance company in this case.

What Does Critical Illness Insurance Cover?

The conditions you are required to meet in order for an illness to be classified as "critical" for these types of policies vary depending on the insurance company you choose. Below are some examples of illnesses that are normally covered by these types of policies:

  • Heart attack
  • Stroke
  • Some types of cancer
  • Kidney failure
  • Coma
  • Alzheimer
  • Major organ transplant
  • Loss of vision, hearing or speech

Frequently Asked Questions

Who needs critical illness insurance?
Anyone can suffer a critical illness, including heart or kidney problems, which would mean that we would incur significant expenses, not only for treatment, but also those that are generated from daily life during an extended period of time we are unable to work due to an illness. If you are your family's breadwinner, have a health insurance plan with a very high deductible, or very limited savings to cover expenses in the event of an unexpected illness, you should have this type of coverage.
What is covered by critical illness insurance?
Your policy provides coverage in the cases that are included in your plan. Some illnesses that are typically covered include: heart attack, stroke, certain types of cancer, loss of vision, hearing or speech, transplant of major organs, and kidney failure, among others.
How will I know what amount I am covered for?
It depends on you and your current situation. As a reference, the American Association for Critical Illness Insurance recommends having coverage for at least two years of your rent or mortgage payments.
Who will receive the economic benefit?
Payments will arrive directly to you, not to doctors, hospitals or other types of health care providers. The check will be made out to you.
Is the payment process simple?
You are only required to send your claim (one form is sufficient for each case of critical illness) and a professional will assess and process your claim, usually within ten business days.
Do I have the flexibility to choose what I spend the benefits received on?
You can use the money as you deem fit to pay for household bills, mortgage payments, food, transportation, gas, deductibles, and copays, among other things.
Does this benefit have any tax benefits?
In general, the money you receive from critical illness insurance is tax-free.
Can I combine this insurance plan with another plan to improve my coverage?
You can purchase a critical illness insurance plan separately or in combination with another policy, such as a dental, vision or critical illness policy, ensuring that you have comprehensive coverage that meets your needs.
Is there a probationary period before the coverage becomes effective?
In general, critical illness insurance is activated 30 days after you purchase it. This means that the initial diagnosis of a disease covered under the plan must be received 30 days after signing the policy. However, we recommend that you verify this with your insurance company prior to purchasing a plan.

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