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How Does Critical Illness Insurance Work?

Some critical illnesses simply can’t be avoided. You may fall into a coma, become paralyzed, or suffer kidney failure without warning. If you do, you may face significant medical bills—even with basic health insurance. On top of that, you may be unable to work, meaning you won’t have any revenue come in to help pay for those bills.

Critical illness insurance can help. But what is critical illness insurance, and how does it work?

The Basics of Critical Illness Insurance

Critical illness insurance is a form of supplemental insurance. If and when you fall victim to a “critical illness” (more on that in the next section), you’ll receive a one-time lump sum cash benefit. This payment is designed to help you accommodate the costs of treating and recovering from this illness. It’s also incredibly beneficial because your illness may render you unable to work, putting your income in jeopardy. You’re allowed to use this money however you want; it’s not like health insurance, which will only pay directly for medical benefits. However, most people use critical illness insurance primarily to deal with out-of-pocket medical expenses.

Like other types of insurance, there are many different variables to consider. Different types of policies cover different types of illnesses. They offer different amounts of benefits, and will be associated with different monthly paid premiums.

What Is a “Critical Illness?”

One of the biggest questions you’ll need to ask with critical illness insurance is what qualifies as a critical illness? This is a question that will be answered differently by different insurance companies and policies. However, in most cases, qualified critical illnesses include things like paralysis, coma, Alzheimer’s disease, heart attack, stroke, bypass surgery, an angioplasty, kidney failure, and organ transplants.

Group vs. Individual Critical Illness Coverage

Like with many forms of insurance, you may have the option to purchase a plan as an individual or as part of a group. If your employer offers critical illness coverage, they may be willing to pay for some or all of your coverage; even if they don’t contribute, you may qualify for a lower rate because you’ll be purchasing as part of a group. Accordingly, buying as part of a group may be in your best interest.

However, if group coverage is not available, or if you don’t like the terms offered, you can always buy critical illness insurance as an individual.

Factors That Affect Cost

Critical illness insurance tends to be reasonably affordable, but there are many factors that can affect its price, including:

  • Group vs. individual. In many cases, purchasing a policy as part of a group can help you get a lower rate than if you’re buying as an individual. However, this option isn’t always available.
  • Because men have lower life expectancies and higher risks than women, men generally pay more for critical illness insurance than women.
  • Geographic location. Rates will vary based on your geographic location, with people in bigger cities and higher living expenses tending to pay higher premiums.
  • Nicotine use. Smoking is associated with a host of negative health consequences, including many different critical illnesses like heart attack and stroke. If you’re a regular nicotine user, you’ll likely face higher rates.
  • As you get older, you’ll face increasing risks of critical illnesses. Accordingly, you’ll pay higher and higher premiums for the same benefit coverage.
  • Overall health. Most critical illness insurance companies will attempt to analyze your current health before calculating your costs, asking you simple questions or giving you a medical screening. The better your health, the lower your rates will be, since you’ll be at lower risk of illness.
  • Other insurance policies. You may have other policies in place that reduce your costs, especially if you bundle insurance policies together with the same provider.
  • Amount of benefits. This may be obvious, but the bigger the benefits are, the higher the premiums will be.

Shopping for a Quote

If you decide to purchase critical illness insurance, it’s a good idea to shop around for a quote. Get quotes from multiple different insurance providers and compare them; you might find a similar policy for a much lower premium price somewhere else. You may also find very different benefits and terms from company to company. Make sure you evaluate each policy thoroughly; you should understand exactly how the policy works and which critical illnesses it covers. You’ll also want to ensure you’re comparing prices apples to apples.

Critical illness insurance isn’t right for everyone, but it can help you recover from a health disaster that turns into a financial disaster. And if you’re currently young and healthy, your premiums will be reasonably low. Shop around for the best quote, and see which options are available for you.

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