Critical Illness Insurance: Do You Need it?

Medical advances have extended our life span, but they haven’t made us immune from having a heart attack, stroke or being diagnosed with cancer.

While any of the above diagnosis is no longer a death sentence, they carry a heft treatment cost. Medical insurance helps reduce costs, but most plans don’t cover all the expenses related to treatment, and consumers are increasingly purchasing critical illness insurance.

“More and more medical plans are shifting more of the cost to the consumer,” says Todd Katz, executive vice president, Group Voluntary and Worksite Benefits at MetLife. “The costs are somewhat unpredictable with highly impactful medical conditions.”

Critical illness insurance is a supplemental insurance, which can cost as little as $20 a month, and covers the expenses associated with cancer, heart attack, stroke and organ transplants.

The chance of getting diagnosed with cancer or having a heart attack is heightened for people over age 40. In fact, according to the American Cancer Society, one in two men and one in three women develop cancer in their lifetime.

Medical insurance will cover the diagnosis and treatment of these serious illnesses, but experts say most plans won’t foot the bill for the co-payment, co-insurance, high deductible or any experimental treatments. It also won’t help coving mortgage payments if you are out of work, or transportation to a treatment center or to see an out-of-network doctor. With critical illness insurance, consumers get a lump sum whether its $10,000, $15,000 or $20,000 that can be used how users see fit. 

A person in their mid-40s will pay $180 a year for a $15,000 lump sum benefit offered by MetLife. The rates at MetLife aren’t gender specific.  Keep in mind that you can’t take the insurance out once you are diagnosed with cancer, have a heart attack or suffer from a stroke. You have to be healthy to be eligible for this form of insurance.

According to Jesse Slome, executive director of the American Association for Critical Illness Insurance, improvements in medical treatments means most people will survive very serious illnesses, but a Harvard Medical Study done before the recession found that the vast majority of bankruptcies in the U.S. were related directly to medical conditions. More surprising, 78% of the people that were forced to file for bankruptcy had health insurance at the current time.

“If you have a critical illness chances are you’re going to survive, but your finances are going to be so significantly impacted,” says Slome.

A MetLife Financial Impact of a Critical Illness study found the average financial cost associated with a critical illness is $35,500. Most of the cost is linked to lost wages,  the survey found. MetLife found that households spend nearly $5,000 on out-of-pocket medical expenses that insurance won’t cover, and about $1,500 on non-medical expenses.

Although there is no guarantee you will suffer from any of these illnesses, Slome says critical illness insurance can offer peace of mind. According to experts, someone with a family history of any of these types of diseases, or can afford to pay the monthly premium should consider this form of insurance. Because it pays a lump sum, the insured doesn’t have to worry about submitting receipts or getting reimbursed for their expenses.

“At the end of the day the money gives peace of mind, it gives you options,” says Slome. “That’s what money does.”

Critical illness insurance is typically offered by an employer, but it can also be purchased in the individual market. While its low cost is attractive to some people, many others don’t even know it exists.

Another MetLife study found that many people are surprised to learn their existing medical insurance doesn’t cover the full financial costs associated with critical illnesses.  According to the study, only 28% of full time employees have heard of critical illness insurance.  What’s more, many individuals confused this form of coverage with other health related insurance.

“A lot of young people in particular are insuring against the wrong risk: insuring against dying,” says Slome. “Your risk of dying is greatly reduced before the age of 65.”