Critical Illness Policies Explained - Compass Insurance Advisors
  • Critical illness coverage is a supplemental insurance policy that pays a lump sum check for a diagnosis of a critical illness. This is a great option to add to your health insurance, whether you’re covered in the private market, through an employer health insurance plan, or even Medicare.

    The types of diagnosis’ that typically qualify are Heart Attacks, Strokes, and Invasive Cancers, however some carriers will pay for other major illnesses like ALS or Kidney Failure.

    The idea is to help you take care of your out-of-pocket expenses and/or replace any income that may have been lost due to the time needed to get treated and heal enough to get back to work.

    Consider the following example:

    Jake, from that one insurance company, has health insurance with a deductible & max out-of-pocket of $7,000 and decides to add a Critical Illness at a $40,000 benefit because he’s had aunts and uncles who have been diagnosed with colon cancer so he knows it runs in the family and is something he should be concerned with.

    Jake gets diagnosed with Invasive Cancer and racks up $1 million in medical bills. Now, because he has health insurance, he is only responsible for the first $7,000 of his medical bills and the rest of his bills are covered by the health insurance. However, if Jake has life-threatening cancer, he may not be able to work for some time due to the level of treatment and healing he will be going through so there’s sure to be a loss of income whether he’s a W2 employee or owns his own business. But because Jake has the Critical Illness policy he’s going to get a check for $40,000. Ideally, Jake can take $7,000 from the $40,000 and take care of his deductible and max out-of-pocket expenses on his health plan and use the remaining amount ($33,000) to take care of his monthly bills that are sure to come, like his rent/mortgage, groceries, utilities, car payment, and so on. There’s no telling when he’ll feel well enough to start wearing khaki pants again! The $33,000 would be a huge help in that instance.

    Let’s also say for example that Jake is the homemaker and his spouse is the breadwinner. Could there be a loss of income in this scenario? If Jake is in the hospital, where is Jake’s spouse going to want to be? I would assume in the hospital with him. What if kids are involved? Maybe grandma or grandpa can help but what if they are on a fixed income and have to travel? What if it’s a sibling that has to take time off work to help out? They could use part of the $33,000 to help facility whatever the situation is and help those who aren’t directly involved but are still being affected.

    The key here with this supplemental insurance policy is that it gets paid to the policy owner and not the doctor or hospital, so the owner gets to use it however they deem appropriate.

    Maybe Jake wants to work out a payment plan for the $7,000 with the facility that treated him because he feels like he wants to use the full $40,000 for something else. Or maybe Jake is a bit of a naturalist and wants to fight the horrible disease through alternative methods. He can use the money to go that route if he wants. The possibilities are almost endless. Because the money is paid directly to him, he can use the funds however he wants.

    In the United States, medical bills are still the largest cause of bankruptcy. Often that bankruptcy happens because of a loss of income due to the medical bills in addition to the medical bills themselves. A critical illness policy is a great way to insure against the leading causes of medical bankruptcy.

    If you have any questions about adding a critical illness policy to your individual or group health policy, contact one of our advisors today.

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