Critical Illness Insurance 101
and How It Works

If you’re lucky, you’ve probably never had to use critical illness insurance. You’ve maybe never even heard of it. But in the event of a big health emergency, such as cancer, heart attack or stroke, critical illness insurance could be the only thing protecting you from complete financial ruin. Many people assume they’re fully protected with a standard health insurance plan, but the exorbitant costs of treating life-threatening illnesses are usually more than any plan will cover. Read on to learn more about critical illness insurance and whether it’s something you and your family should consider. 

The Quick Rundown

• Critical illness insurance provides additional coverage for medical emergencies like heart attack, stroke, or cancer.
• Because these emergencies or illnesses often incur greater than average medical costs, these policies pay out cash to help cover those overruns where traditional health insurance may fall short.
• These policies come at a relatively low cost. However, the instances that they will cover are generally limited to a few illnesses or emergencies.

 Critical Illness Insurance 101

As the average life expectancy continues to increase, insurance brokers are finding ways to make sure you can afford the privilege of getting older. Critical illness insurance was developed in 1996, as people realized that surviving a heart attack or stroke could leave a patient with insurmountable medical bills.

According to the World Health Organization (WHO), “An estimated 17.9 million people died from Cardiovascular diseases (CVDs) in 2019, representing 32% of all global deaths. Of these deaths, 85% were due to heart attack and stroke. Over three quarters of CVD deaths take place in low- and middle-income countries. Out of the 17 million premature deaths (under the age of 70) due to noncommunicable diseases in 2019, 38% were caused by CVDs.”

CFP’s consistently warn that even with excellent medical insurance, just one critical illness can be a tremendous financial burden. Critical illness insurance provides coverage if you experience one or more of the following medical emergencies:

• Heart attack
• Stroke
• Organ transplants
• Cancer
• Coronary bypass

Because these illnesses require extensive medical care and treatment, their costs can outstrip a family’s medical insurance policy quickly. If you don’t have an emergency fund, you’ll have an even harder time paying those bills out of pocket. 

According to the 2019 research article “Direct cost of treatment in patients with acute ST-elevation myocardial infarction in Vietnam”, Sy Van Hoang, Tuan Thanh Tran, and Kha Minh Nguyen collected 130 patients with acute ST-elevation myocardial infarction (MI) with male: female ratio of 3:1, at average age. The length of stay in hospital was 3.3 days and the median direct cost of MI was 68,902,500 VND, upwards to 104,266,000 VND.

While that treatment would be covered by traditional health insurance, it does not take into consideration time lost from work or if the MI was severe enough, the possibility that continued treatment would use up your annual limit on your health insurance policy leaving you responsible for out of pocket medical costs.  

You do not want to be laying in a hospital room while recovering from a heart attack stressing about your ability to financially survive. 

Critical illness insurance can pay for costs not covered by traditional insurance. The money can also be used for non-medical costs related to the illness, including transportation, child care, etc. Typically, the insured will receive a lump sum to cover those costs. Policy pricing is impacted by a number of factors, including the amount and extent of coverage, the sex, age and health of the insured, and family medical history.

Why Is It Important?

You can purchase critical illness insurance on your own. Also adding it to a current life insurance plan may also save you money.
A big draw of critical illness insurance is that the money can be used for a variety of things, such as:

• To pay for critical medical services that might otherwise be unavailable.
• To pay for treatments not covered by a traditional policy.
• To pay for daily living expenses, enabling the critically ill to focus their time and energy on getting well instead of working to pay their bills.
• Transportation expenses, such as getting to and from treatment centers, retrofitting vehicles to carry scooters or wheelchairs, and installing lifts in homes for critically ill patients who can no longer navigate staircases.
• Terminally ill patients, or those simply in need of a restful place to recuperate, can use the funds to take a vacation with friends or family.