What is Critical Illness Insurance? Your Complete Guide

Health insurance claims are notorious for their complexity and slow payouts.

That’s the last thing you want when faced with a life-threatening condition.

Unlike many other forms of insurance, critical illness insurance offers simple, straightforward way to protect you and your family during a health crisis.

This leads to the question:

What is critical illness insurance, and how does it work?

We’ll tackle the definition, application and benefits of critical illness insurance to help you make an informed decision.

What is Critical Illness Insurance? How is it Defined?

Let us give it to you straight:

Critical illness insurance provides lump sum amount to you (the holder of the insurance policy) if you have a critical illness.

You’re free to use the received money in any way, either by using it to cover the medical expenses or for personal use.

It is therefore wise to consider critical illness insurance way in advance, so you don’t have to feel an extra burden or helplessness when you fall into the sudden trap of any critical illness.

But that’s only half the equation.

Ok, So what’s a Critical Illness, and How Do I Know if I have One?

We must also understand exactly what’s considered a “critical illness,” as well as which illnesses your insurance covers (which we’ll get to in a little bit).

Critical illnesses refer to life-threatening medical conditions that can heavily affect the lifestyle of individuals having them, and can lead to severe consequences such as a permanent disability or impairment.

Why Do I Need Critical Illness Insurance?

Understand the Need for Critical Health Insurance In Your Life

There are multiple reasons why you’d want to have critical illness insurance.

Let’s divide these into 3 categories: financial, medical, and emotional

The Financial Aspect

The cost related to various critical illnesses is often so varied and immense that it is impossible for an individual to pay it off.

In the majority of the cases, your income and savings alone can’t guarantee that you will be able to survive the financial side of these critical illnesses.

Similarly, according to the report of American Cancer Society, the total amount Americans invested in the cancer treatment in 2015 was a staggering $80.2 Billion. The amount has expanded over the years and the costs for treatment and indirect costs have increased manifold since then. Cancer is thus not only just emotionally and physically draining but also has huge financial implications.

The Medical Aspect

According to the American Cancer Society, the probability of being diagnosed with cancer once in a lifetime is 39.7% for men and 37.6% for women.

That equates to approximately 1 in every 3 people.

Similarly, according to the research carried by American Heart Association, someone suffers a stroke or heart attack every 40 seconds.

Though scientific breakthroughs have reduced the incidence of cancer and other critical illnesses, the cost of treatment is now seeing an all-time high.

It is becoming difficult to bear the burden of treatment without an external help.

The Emotional Aspect

When an individual in a family is affected by a critical illness, the repercussions are quite high. It is not only very difficult for the family members and the person affected to digest the news, but they often struggle with how to provide maximum comfort for their loved one.

At such a time, the basic need of such a family or individual is that they are not harrowed by financial aspect of the best possible health and medical facilities and the variously related expenditures. Critical Illness insurance will give you emotional comfort to stay strong in the face of calamity and ease your burden.

Historical Perspective: Why Was Critical Illness Insurance Created?

Critical illness insurance didn’t come from an insurance agency creative department as you might suppose.

In actuality, it was born out of the idea of a South African physician, Marius Barnard.

Marius was a very popular and brilliant heart surgeon, who was also the part of the team that made the first human-to-human heart transplant in 1967.

As the history of critical illness insurance goes according to Brianso Insurance, critical illness insurance finds its roots not from the think tank of an insurance agency creative department, rather from a physician Marius Barnard in South Africa who brought forward this idea in 1985.

Marius was a very popular and brilliant heart surgeon, who was also the part of the team that made the first human-to-human heart transplant in 1967, which was a great success.

As Marius was closely linked to all his patients, he not only knew their medical histories and conditions they suffered from but also understood the vast financial difficulties and pressures they faced both while their treatment was taking place and once they were completely treated.

These issues faced by the patients were not just temporary hassles but were so immense and draining on the pockets of the patients that they were hindering their recovery. He realized that his patients needed a financial security that would end their worries and rather help them focus towards spending quality time with their families so that they could recover in the best possible way.

In 1985, Marius introduced a specific type of insurance that would cover the most threatening and harsh health issues:

  • Heart attack
  • Coronary bypass surgery
  • Stroke
  • Cancer

The idea was greatly appreciated by various South African insurance companies as they saw the potential of such an insurance policy.

They felt that a visible void was identified by Marius which needed to be addressed. So initially, what started off as just the cover for 4 main dangerous illnesses became more progressive over the years to include all medical issues that could be financially burdensome for patients.

This included:

  • Loss of hearing
  • Loss of sight
  • Disabilities
  • Organ transplant
  • Kidney failure
  • Liver failure

In today’s insurance world, critical illness insurance coverage includes multiple illnesses and supports the recipient of insurance claims. Critical Illness insurance programs have been introduced for all ages and genders with flexible and variable budgets and requirements.

The Inner Mechanism Of Critical Illness Insurance: Real-life Application

critical illness insurance application for a claim

It would be best to describe how critical illness insurance works with the help of an example.

Mr. Tom, a 50-year-old man, has a family to support. He’s also in the minority of individuals with critical illness insurance.

One day at work, he gets a heart attack. Due to the temporary disability caused by this sudden illness, he is both unable to go to his office and to bear the expenditures of his family. His boss informs him that he can keep the job but he won’t be able to receive his salary.

In the midst of this stressful situation, his insurance company steps in. Mr. Tom will be given a large, tax-free, lump sum amount that will be his financial security due to this temporary disability. With this amount, he can pay the tuition fees of his children, pay for his medical recovery and/or treatment, or use this amount as a financial recompense of the loss faced by either him or his spouse due to the fact that she would be leaving her job to provide long-term care for him.

Mr. Tom has been paying small premiums for his critical illness insurance, and it’s all been worth it for this moment..

How to Make A Critical Illness Claim

How to Make A Critical Illness Claim for Coverage

Various companies offer plans that have different requirements and coverage.

When you face any critical illness, you must to pass on a claim to your insurance company and you will get a certain payment.

However, some crucial points to keep in mind:

  • You will only be covered for and to the extent mentioned in the agreement that you have with your insurance company.
  • Certain requirements of the insurance provider need to be met for a successful payout.
  • You will have to pass on your complete medical and personal details including age and gender to the insurance company. This determines the premium you pay. This will also save you from any complications in the future.
  • The riskier and unhealthy lifestyles will lead towards higher premium. For example, if you are a smoker, you’ll pay more because you are more at risk of getting a critical illness like lung cancer.
  • During the initial 90 days of the coverage period, if you are diagnosed with cancer or any other critical illness, or you already have cancer symptoms or are diagnosed, there is a high chance you won’t get any amount of money.
  • You have to assure the company of a certain days survival period (usually 30 days) in case of cancer for the policy to be applicable.
  • In some instance, you would have to wait for about a month after a certain diagnosis to put forth a claim for the critical illness you might be facing.
  • Keep an eye on the premiums that you will have to pay against a policy. Premiums can be both fixed or variable depending on the insurance policy you have opted for.
  • It is only sensible that you should ask your insurance company all the questions in your mind and get to know everything about your particular insurance policy instead of being in the dark and assuming certain details yourself. The more knowledge you have, the more likely you are to make a successful claim in case you get diagnosed with a critical illness.
  • Check out various companies and their coverage for different critical illnesses and then make an informed decision.

Which Conditions Are Covered And Which Conditions Are Not Covered?

Though the covered conditions can vary from insurance company to insurance company, here is a compact compiled list of all the various illnesses that come under the cover of critical illness insurance:

Brain

  • Alzheimer’s Disease
  • Benign Brain Tumor
  • Coma
  • Loss of speech
  • Traumatic brain injury
  • Spinal Stroke
  • Stroke
  • Creutzfeldt-Jakob disease
  • Progressive supranuclear palsy
  • Dementia
  • Arteriovenous malformation (AVM) of the brain
  • A cerebral aneurysm

Heart

  • Aorta Graft Surgery
  • Cardiac Arrest
  • Coronary artery bypass grafts
  • Heart attack
  • Heart Valve Replacement or Repair
  • Structural heart surgery
  • Cardiomyopathy
  • Progressive pulmonary hypertension

Cancers

  • Low-grade prostate cancer
  • Various Cancer Types

Autoimmune

  • Devic’s Disease
  • HIV infection
  • Multiple sclerosis (MS)
  • Systematic Lupus Erythematosus
  • Aplastic anemia

Nervous System

  • Motor neurone disease (Lou Gehrig’s)
  • Parkinson’s Disease
  • Multiple system atrophy
  • Progressive pulmonary hypertension
  • Pulmonary artery surgery

Other

  • Kidney Failure
  • Rheumatoid arthritis
  • Blindness
  • Removal of an eyeball
  • Benign Spinal Cord Tumor
  • Third-degree burns
  • Loss of hand or foot
  • Paralysis of a limb
  • Deafness
  • Severe lung disease
  • Liver Failure
  • Bladder Removal
  • Ulcerative colitis
  • Crohn’s Disease
  • Bacterial meningitis
  • Pneumonectomy
  • Carcinoma in situ of breast, cervix or testicle
  • Non-Malignant pituitary tumor
  • Intensive Care
  • Loss of independence
  • Major Organ Transplant
  • Terminal Illness
  • Additional Critical Illnesses

Child-only Illness Coverage

  • Autism
  • Cystic fibrosis
  • Muscular dystrophy

There are a few exceptions and illnesses that are not included in the list that you should be careful about. It would be a great mistake to assume that all critical illnesses will be covered by your policy including:

  • Skin cancer, dental care, cosmetic surgery etc or cancers that are non-invasive and/or pre-malignant.
  • Treatments that are done outside the areas the insurance company operates in and if those countries are not included in the list of “acceptable countries”.
  • Illnesses that can be caused by overuse of smoking, alcohol or drug abuse.
  • Illnesses caused as a result of criminal activities or are self-inflicted.
  • If any illness is found to be in relation to HIV/Aids, chances are it won’t be payable. Certain conditions like HIV/AIDs caused by blood transfusion etc need to occur for the payment to be made to the recipient.
  • Illnesses resulting from external or internal congenital disorder
  • Any illnesses caused as a result of wars, hostilities, invasions, civil riot or commotion, revolution etc.
  • If certain illnesses like Parkinson’s, Alzheimer’s etc are caused before a particular age bracket is reached, they might not be covered.
  • Certain illnesses will only be covered if they were caused by a disease and not by any accident like Aorta graft surgery.
  • For certain critical illnesses, the damage or symptoms need to be permanent to get the required payout.
  • If you get a terminal illness in the last 12 months before your insurance cover expires, you might not be able to get paid for it.

What Is Critical Illness Rider In Insurance?

A critical illness rider is basically an add-on feature of a life insurance policy. It makes it possible for the recipient to acquire a certain amount if he is diagnosed with any critical illness that is covered by his policy.

Needless to say, the recipient is eligible to claim the amount only if he didn’t have that illness prior to availing this policy. If the person passes away due to this critical illness in a certain time limit defined by the policy, he will not be able to receive the amount of critical illness rider.

However, adding this feature to your insurance policy would mean an increase in your premium. Once you have claimed this add-on feature, your future premium payments amount will reduce.

Variants of Critical Illness Insurance Policy

There are various policies in relation to critical illness insurance:

Stand-Alone Critical Illness Policy

This policy is for one-time use only and will be terminated by the insurance company after a successful claim is made due to the diagnoses of a critical illness. A certain survival period of 15 to 90 days is required before a claim can be successfully made.

Combination Of Life And Critical Illness Policy

This is a cheaper option than maintaining two separate policies. In this case, usually, the applicant will get a certain amount in case of a critical illness, irrelevant to a certain time limit survival frame. You can buy back a new insurance cover once you have made a successful critical illness claim. One added benefit is that this will make it easy for you to gain another insurance cover which might be denied by other insurance companies due to your medical condition. Your combined policy could either deal life insurance and critical illness as two separate factors or not, depending upon the insurance company policy.

The severity of Illness policy:

Another type or variant of critical illness is severity policy. According to this policy, you will get a certain percentage of total payout according to the severity of your critical illness. The greater the level of severity of illness, the higher the payout percentage will be.

How Do I Assess My Risk?

Your risk assessment is based on various factors:

  • Age
  • Gender
  • Family medical history
  • Previous medical history and fitness level
  • Marital status
  • Number of dependents

Which Insurance Policy is Best for Me?

In case you are a young and single individual, it is best to go for just critical insurance policy alone. This will assist you in case you get trapped by any critical illness. When you get married later, you can strengthen yourself by buying an additional life insurance policy.

If you are married or are in the 35-65 years age bracket, it is better to go for a combination insurance policy with both life and critical illness insurance, regardless of which policy you currently have.

In this case, if you suffer from any critical medical condition, you and your dependents can benefit from the respective payout without any stress.

Having the critical illness insurance will mean that you can easily enjoy the perks of a certain payout in case of a critical illness without the stress of depending on savings or on employee benefits package.

The Calculation of Insurance Coverage

Different policies can give you different coverage rates and the ailments they could cover. Although there’s no silver bullet, you can determine coverage relatively accurately based on your situation.

There are a few pointers to calculate the financial cover you will need before buying a critical illness insurance policy:

Your income is an important factor for calculation of the cover you should seek. If you go through a long period of critical illness with no salary, you must determine how much would you need for yourself and your dependents.

The number of dependents and the education tenure and dependability level is another important factor.

Third, the medical expenditure in case of a critical illness, main monthly ongoing expenditures and payments that you have to pay will also affect your decision.

All these factors should be compared against the assets and savings you maintain currently or any support you might get from other sources like state help and the salary of spouse.

Here’s what it comes down to

Critical illness insurance was formed with the objective of keeping the welfare of patients suffering from some of the most detrimental illnesses in mind.

Over the years, several insurance companies have met the challenge of making financial protection easier for the general public.

It assures you that in case of an unfortunate medical condition, you will not be left alone and you and your dependents will have a strong protective shelter so that you can focus on your health without worrying about finances..

Don’t delay in investing in this great opportunity for a secure future.

By |2018-07-07T18:21:41+00:00June 15th, 2018|Insurance Types|1 Comment

About the Author:

Matt has a strong background in writing and sees a ton of value in talking with insurance experts that know way more than he does. His own grandmother had a severe stroke several years back, and over the course of a few years, it completely drained her hard-earned retirement.

One Comment

  1. Brian So June 15, 2018 at 10:03 pm - Reply

    Great post! Hard to imagine a heart surgeon, of all people, would be the one to come up with the idea of critical illness insurance!

    A simple guide to determining how much critical illness insurance to get is to multiply your annual income by a multiplier, like 1x, 1.5x or 2x. That way, you know that is how long you can take time off work to recover from your illness.

    There are also a number of different plans to choose from, like term-10, term-20 or term to age 75. These all have their benefits and drawbacks, so it’s important to speak with an insurance advisor to help you understand the pros and cons of each!

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