Insurance Health Insurance What Is Critical Illness Insurance? Critical Illness Insurance Explained By Mila Araujo Mila Araujo Facebook Twitter Mila Araujo is a certified personal lines insurance broker with more than 20 years of experience in the insurance industry. She currently serves as the director of personal insurance for Ogilvy Insurance where she works with some of the world's largest insurers and manages the needs of thousands of clients with the help of her broker team. As an insurance expert, has written about homeowners, auto, health, and life insurance for The Balance. Mila received the Bernard J. Finestone Award in General Insurance from McGill University in 2001. learn about our editorial policies Updated on April 21, 2022 Reviewed by Eric Estevez Reviewed by Eric Estevez Eric is a duly licensed Independent Insurance Broker licensed in Life, Health, Property, and Casualty insurance. He has worked more than 13 years in both public and private accounting jobs and more than four years licensed as an insurance producer. His background in tax accounting has served as a solid base supporting his current book of business. learn about our financial review board In This Article View All In This Article Definition and Examples of Critical Illness Insurance How It Works What Does It Cover? Do I Need Critical Illness Insurance? Alternatives Photo: SDI Productions / Getty Images Definition Critical illness insurance is a type of health insurance that pays you a lump sum if you are diagnosed with a severe illness. Definition and Examples of Critical Illness Insurance Critical illness insurance is a type of insurance policy that compensates policyholders with a lump-sum payment if and after they are diagnosed with a severe illness. This payment can then be used at the policyholder's discretion to cover healthcare or personal costs due to their illness. Critical illness insurance is purchased and paid for separately from normal health insurance. You may find that it is offered as part of a full healthcare package from your employer or by the same companies that offer other standard health plans. Alternate name: critical care insurance Some critical illness plans are very limited and may only cover a small handful of illnesses, whereas others can cover you for a vast range of ailments or illnesses. The types of illnesses that are covered will be listed in your contract. In most cases, the amount you receive as a payout will vary based on the illness. How Does Critical Illness Insurance Work? Like most forms of insurance, if you purchase a critical care plan, you will need to pay a monthly policy premium. It's a contract, and paying your bill each month is the deal you make in exchange for a promise of future bulk payment in the event that you become ill. Cost and Payoff There are plans at many levels, that cover a narrow or wide range of costs, and with-lump payments from as little as $5,000, all the way up to $500,000. The exact amount will depend on your contract and what it covers, as well as a few other factors. These factors include: Your ageYour health and risk factorsWhether you purchase the plan as a standalone or as an add-on to a current health or life insurance policyWhom the plan will cover (whether just you, or you and a spouse, children, and any other members)The number and types of illnesses that fall under its scopeWhether you smoke or use other tobacco products Note Some critical care plans will mandate a health screening to assess your risk factors before they offer you a rate or any type of quote. Others will promise to cover you without any health questions. This tends to happen only if you have a standard health plan through your employer or through the same insurance company. Plan Details Critical illness insurance often comes with a list of illnesses that are included in the policy, as well as details you'll need to make a claim, such as: How each disease or condition is definedWhen you are eligible for a payoutWhether you must wait for a set amount of time before you receive your payoutWhat percent of your total benefit will be paidWhat happens if the illness occurs a second time How Payout Funds Can Be Used Once the insurance company pays your benefit, you can use the money to cover any costs that come up during treatment, whether they are for health care or not. These may include: Living costs during your recovery time In-home care Treatment costs that are not covered by the plan (or by a standard health plan) Travel to and from treatment Deductibles, copays, and other extra costs that may come out of pocket Childcare costs Note If you're thinking about signing up for a critical illness plan offered through your employer, be sure to ask whether you'll be able to take it with you if you leave your job. What Does Critical Illness Insurance Cover? The most basic critical illness coverages are for cancer, heart attack, and stroke, as these are some of the most common severe illnesses and leading causes of death across the globe. You can also find more comprehensive plans that cover a wider range of conditions, such as: AngioplastyKidney failureOrgan transplantsAlzheimer's diseaseMultiple sclerosisCystic fibrosisParalysisSevere burns Unlike standard health plans, which pay the costs of medical procedures to the doctors or hospital, a critical illness plan will pay you, and in cash (or check). You then can use this money to pay for any cost that comes up while you're on the mend, without limit. Do I Need Critical Illness Insurance? Insurance is both a hedge against future risk and a way to invest in your peace of mind, but it is always a gamble. You may pay for years without ever needing to file a claim or cash in on a payout. You may pay for a plan that provides a benefit that is much smaller or much larger than you will end up needing. Or you may pay for a plan and end up needing it within just a few years, which would make it very worth the purchase price. Factors to Help You Decide If you are diagnosed with a critical illness, you can still face financial hardship, even when you have the most comprehensive coverage. Before you purchase a critical illness plan, think about these factors: What is your risk for coming down with a severe illness in the next five to 10 years?Are other members of your family at risk of falling critically ill? (Or have they in the past?)What does your standard health plan cover?Will you be able to maintain your standard of living if you can no longer work?How can you best prepare for surprise costs that you can't predict? Plans Come in Many Sizes A smaller or more narrow plan will be cheaper. Still, the payout may not be enough to cover all of the costs that come up if you become ill and can no longer work. A plan with greater coverage will cost more in the short term, but it will also cover a wider range of illnesses and provide a better payout if you do become ill. See below for an example of how a critical care plan would play out for three years and at two price points. When you are looking to purchase a policy, you'll have to think about the cost and whether the monthly payments fit into your current budget. You should also think about your health, your future health, and any personal risk for illness that you're aware of. You may need to talk to your doctor about your: Age, as the risk of most cancers and heart disease increases with ageFamily history of certain diseasesRisk factors, like smoking or drinking Depending on the options you choose for your coverage, you'll have to weigh the cost of the plan against how much you could end up paying out of pocket should you fall critically ill. Ask yourself whether you can absorb these costs on your own without insurance. If you can't afford the costs but are high-risk, then critical illness coverage may be a wise purchase for you. Alternatives to Critical Illness Insurance Like other forms of supplemental insurance, critical illness insurance is an option, not a mandate, and may not be the best choice for everyone. There are many other alternatives you can consider: Skip the extras: If you are in your 20s or 30s and fairly healthy with no risk factors, you may not need critical illness insurance yet. You may also choose to forgo supplemental insurance if your standard health plan is very good. Cancer-only plan: Unlike many other severe illnesses that are not so common, cancer affects more than 30% of people in the U.S. Some companies that offer critical illness insurance also offer a more focused cancer-only plan. This may be a good choice for you if you have a high risk of cancer. Bundle plans: Some insurance companies offer the option to combine a critical illness plan with other coverages like disability or life insurance. Bundling like this makes sense if you want to bulk up on coverages and prefer to avoid paying all of those bills for so many plans. Key Takeaways Critical illness insurance is a type of supplemental healthcare insurance that pays a lump sum to policyholders who come down with a severe illness.Plans can offer a wide range of payouts, from $5,000 to $500,000 in lump-sum payments. The exact amount depends on your contract and the illness.You can use the payout to cover a wide range of costs during treatment, whether for health care or other reasons.People who are young and healthy may not need critical care insurance. For older people or those with risk factors, it may be a smart purchase. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Physicians Thrive. "What Doctors Need to Know About Critical Illness Insurance." Accessed Dec. 3, 2021. SearchPub. "Critical Illness Insurance: Why Critical Illness Insurance Makes Sense." Accessed Dec. 3, 2021. World Health Organization. "The Top 10 Causes of Death." Accessed Dec. 3, 2021. AHA Journals: Circulation. "Shared Risk Factors in Cardiovascular Disease and Cancer." Accessed Dec. 3, 2021. American Cancer Society. "Cancer Facts & Figures 2020," Page 4. Accessed Dec. 3, 2021. United Healthcare. "Critical Illness Insurance: Combined Plans." Accessed Dec. 3, 2021.