Auto insurance. Life insurance. Health insurance. Homeowners insurance.
There are many types of insurance products that we all understand, we all need, and we all have.
But when it comes to insurance policies that can protect you in case of a future illness, medical condition, or injury… deciding which policy to choose can be a bit more complicated.
In recent months we’ve published guides to disability insurance and long-term care insurance.
Today we’re talking about a different type of protection:
Critical illness insurance.
Is critical illness insurance worth it? What does it pay for? What does it cover? Should you get it?
When planning for unforeseen medical emergencies, here’s what doctors need to know about critical illness insurance.
Table of Contents
What is Critical Illness Insurance?
Serious illnesses lead to major medical costs, and those costs are only partially covered by health insurance. No matter how great your health insurance policy may be, you’ll likely still be on the hook for paying a small portion of your medical expenses. Even a tiny piece of your care can equate to tens of thousands of dollars in out-of-pocket costs.
This is where critical illness insurance comes into play.
Critical illness insurance is a supplemental insurance plan. It pays a one-time cash benefit to cover costs associated with treating and recovering from expensive medical procedures. Should you contract a serious illness, your policy will pay out a specified benefit amount that you can use for medical costs not covered by your health insurance.
Critical illness insurance pays for copays, deductibles, and travel to and from critical care treatments.
You can also use critical illness insurance on day-to-day living expenses, such as:
- Mortgage payments
- Childcare
- Car insurance premiums
- All sorts of other financial obligations
There is no limit on how and where you can spend the money. Typically, doctors use it to cover unforeseen medical costs that arise from unexpected medical conditions.
Many insurance companies offer critical illness insurance. Some suggest it as an individual policy that you can take independently from any other policy. Others offer it as an optional rider that you can add to a life insurance policy.
There’s only one big problem with critical illness insurance:
You’ll need to suffer from a “covered illness” in order to qualify to receive your benefit.
Check out the Pros & Cons of Paying Off Your Mortgage Early.
What Does Critical Illness Insurance Cover?
Every critical illness insurance policy, regardless of the insurer, includes a list of covered conditions. To collect your benefit amount, you’ll need to have one of those particular conditions.
All critical illness plans cover conditions such as heart attack, stroke, and cancer. Some policies also cover conditions such as Alzheimer’s disease, Parkinson’s disease, and major organ failure (like kidney). Most policies also provide benefits if you need a major organ transplant or need coronary artery bypass surgery.
Critical illness policies do not cover pre-existing conditions such as:
- Heart disease
- Diabetes
- Asthma
How is Critical Illness Insurance Different from Disability Insurance?
Critical illness insurance and disability insurance are two completely different types of policies, but they share some similarities.
You can use the benefit payouts from both of these insurance policies to pay for living expenses, medical bills, healthcare, and all sorts of out-of-pocket costs. But that’s where the similarities end.
Here are the key distinctions between critical illness insurance and disability insurance:
What They’re Designed For
Critical illness insurance exists primarily as a way to pay for healthcare expenses. Such as copays, deductibles, and treatments that your medical insurance won’t cover (or will only cover in part).
Yes, you can use your benefit payout to pay for anything, but it’s intended to pay for medical expenses that you can’t cover with savings or regular income.
Disability insurance is quite different, as it is designed to protect your future unearned income. Disability insurance (often called disability income insurance) offers an ongoing benefit to provide you with a source of income when you’re too sick or too injured to perform your job.
How and When You Collect Your Benefits
With disability insurance, once you become eligible to receive your benefits, you will continue to receive monthly benefits throughout your benefit period. Depending on the policy you choose, your benefit period can be as short as two years or as long as until you hit the age of retirement.
As income insurance, it’s a way to ensure that you’ll continue to receive income as long as you cannot work due to your illness or injury.
Critical illness insurance works differently.
Critical illness insurance offers a lump-sum benefit. This limited benefit can range from $5,000 to $500,000, with most insurers capping their maximum benefit in the $30,000 to $50,000 range.
Policies with benefits of $50,000 or less usually don’t require any medical exams or health screenings. Policies with benefits of $500,000 are fully underwritten, so you can expect some type of health screening in order to qualify as a policyholder.
Disability income insurance, on the other hand, provides monthly benefits of about 60% of your salary.
Here’s why this matters:
If you’re a 40-year-old physician with a critical illness policy that pays $50,000, you’ll receive one lump sum payout of $50,000. Many insurers provide only one lump sum payout. Although some allow for two payouts, should you recover from your illness and then suffer a reoccurrence.
With a disability insurance policy that offers a $10,000 per month benefit and a lifetime benefit period, that same 40-year-old physician can collect roughly three million dollars. (Provided that their disability is so severe that they can never work again.)
How You Meet the Eligibility Requirements
With disability insurance, how you meet eligibility requirements to receive benefits is determined by the definition of disability. Accordingly, with a policy that has a “true own-occupation” definition of disability, you can collect benefits if you suffer any illness or injury that prevents you from doing some or all your current job.
For example, a surgeon can collect disability insurance benefits for a simple hand injury. With a critical illness policy, that same surgeon with that same hand condition would never meet eligibility requirements or be able to collect benefits. A hand injury is not considered a critical illness, though for a surgeon, not having the use of their hands is career-ending.
With a critical illness insurance policy, the list of covered conditions is relatively short. A disability insurance policy will pay benefits for a wide variety of illnesses and injuries. Including less serious and short-term injuries that may affect your ability to do your job without affecting your quality of life.
Which is Better: Disability Insurance or Critical Illness Insurance?
Disability insurance is the best way to protect yourself, your family, your assets, and your future income.
All physicians and all high-income earners should have a disability insurance policy, regardless of:
-
- Where they live
- Where they work
- What type of specialty they practice
The benefits can last a lifetime, and meeting the requirements is easy. (So long as you select a policy with a true own-occupation definition of disability.)
Critical illness insurance can be quite beneficial should you find yourself in a situation with exorbitant medical bills. But it is not designed to supplement your income. It’s for paying off (or paying down) costly medical bills so that you don’t have to dip into your savings or reallocate income to pay for medical expenses.
You can have both disability insurance and critical illness insurance. But if you only choose one, disability insurance is the better choice.
Why?
Because if you suffer a critical illness that prevents you from doing your current job (as defined by your policy’s definition of disability), that illness will make you eligible to receive disability insurance benefits.
Related: How to File a Disability Insurance Claim for Physicians.
How Much Does Critical Illness Cost?
Like all insurance policies, the price of maintaining critical illness insurance depends on a variety of factors.
Your monthly premium will depend upon:
- age
- gender
- where you live and work
- if you smoke
- the amount of your lump-sum benefit
Disability insurance policies allow you to lock in at a fixed premium rate for the duration of your policy. The monthly premiums for critical illness insurance policies will increase as you age and become more susceptible to suffering a critical illness.
One way to save on the cost of a critical illness insurance policy is to add it as a rider to a life insurance policy. Some insurers provide it as an individual policy, while others allow you to add it to a life insurance plan, which can help bring down the cost a bit.
Which Insurance Companies Offer Critical Illness Insurance?
Many national insurance companies provide critical illness insurance. Some are individual policies that you can take on your own and some are group policies that employers can offer their employees.
Here are some of the best insurance providers for critical illness insurance:
MassMutual
MassMutual critical illness insurance is a group plan that employers can provide to their employees as a workplace benefit. In some states, the plan is portable, and employees can keep their coverage even if they leave their job.
In addition, MassMutual’s critical illness insurance will pay lump-sum benefits a total of three times. This means should you recover from your illness, return to work, and then have a recurrence — you’re still covered.
Principal
Principal offers critical illness insurance as a group policy that employees can customize based on their individual needs.
Covered conditions and exclusions vary from state to state. In some locations, policyholders can receive multiple lump-sum payouts if they have a recurring condition, such as major organ failure, stroke, or heart attack, more than 12 months apart.
For physicians who own their practice or partner in a multi-physician practice:
Principal offers the option to combine critical illness insurance with group disability insurance plans as an added employee benefit and incentive.
Guardian
With critical illness insurance from Guardian, you can get lump-sum benefits up to $50,000. (As well as additional cash payouts for less severe hospitalizations, illnesses, and injuries.)
Should an illness or diagnosis, such as cancer, reoccur, you can receive a second lump sum payout of up to $25,000 after the second diagnosis.
Guardian offers both group critical illness insurance and individual critical illness coverage.
Looking for a supplemental plan besides your existing health insurance and disability insurance?
Guardian makes it easy to do, even if your employer doesn’t offer this added benefit.
The Standard
Critical illness insurance from The Standard offers a maximum payout of $30,000. It’s a group plan that covers the cost of yearly wellness screenings. In addition to lump-sum payouts for acute illnesses.
If you’re an employer looking to provide staff with critical illness insurance, this plan doesn’t just protect them — it can also cover their spouse.
The Standard’s plan also includes a Health Advocate Service to help policyholders navigate the healthcare system. Which is becoming more complicated with more complex illnesses and diseases.
No matter how great your health insurance plan is, you’ll almost always have to pay for at least a fraction of your medical costs out of pocket. And when you suffer a serious, critical illness such as heart attack, cancer, or stroke, those fractions can equate to big dollars.
Critical illness insurance offers an affordable and easy way to pay for unexpected medical costs and critical care treatments. But it is not a substitute for disability insurance.
Every physician should have disability insurance to protect their future income. Adding critical illness insurance is another way to protect yourself. You can use that large lump sum payout to pay off a hospital bill or to pay for continuing treatments.
Not sure if you need a policy for critical illness insurance? Ready to protect yourself and your financial future with disability insurance?
Contact Physicians Thrive now for guidance on how to select the policy that’s right for you.
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