Critical Illness Insurance; Do You Need It?
In the time it takes you to read this sentence, the bills from a critical illness may have forced yet another American to file for bankruptcy. Some 1.4 million Americans will file for bankruptcy in 2009, which equates to about three every minute.
Medical problems contributed to over 60 percent of all bankruptcies in the United States and a Harvard University study found that more than three-quarters (77.9 percent) had health insurance at the start of the bankrupting illness. This study was performed prior to the current economic downturn and will likely understate the current burden of financial suffering.
What is taking place? And, what do consumers — especially middle class families — need to know to prevent calamity?
A decade or two ago, people who suffered heart attacks died. No longer. Cancer was prevalent but not as common as today. If you had a stroke, chances are you were not likely to resume a more normal life.
But all that has changed. Early detection of critical diseases, better medical care and new prescription medications and more rapid emergency treatment enables millions of Americans to survive critical illnesses. Survival however comes with a steep cost.
Critical illnesses are striking more Americans every single year. Consider the following: 1.4 million Americans are diagnosed with cancer (American Cancer Society). An estimated 785,000 Americans will have a first heart attack and some 600,000 Americans will experience their first stroke (American Heart Association). The vast majority will survive.
The financial consequences of surviving a critical illness are something few people are prepared for. Most health insurance policies come with deductibles and co-pays that can be as much as $5,000 a year. Prescriptions are not just costly, they are rarely fully covered.
And, here is something you likely have not considered; while you are undergoing treatment or recovering for an extended period of time, you will still have to pay your health insurance premiums. You’ll pay insurance, rent or mortgage, credit card bills, school tuition, real estate taxes, food and utilities.
According to the Harvard study, many families with health insurance found themselves under-insured and responsible for thousands of dollars in out-of-pocket costs. The average out-of-pocket cost was $17,749 for all medically bankrupt families. Because most health insurance is linked to employment, a medical event can trigger loss of coverage. For patients who initially had private coverage but lost it, the family’s out-of-pocket expenses averaged $22,568.
In the late 1990s, a new financial product was developed to help consumers cover expenses associated with critical illness. Appropriately, it’s called Critical Illness Insurance. This specialized insurance provides a lump-sum, tax-free payment should a policyholder suffer from certain specific critical conditions. Some 600,000 Americans now have this protection purchased on an individual basis or through a plan offered by their employer according to the American Association for Critical Illness Insurance, the industry trade organization.
The cash payments which can range from $10,000 to as much as $1 million are paid as a single, lump sum as soon as the individual is diagnosed with a covered cancer, stroke, paralysis or a heart attack. The cost for protection is based on the individual’s sex (men pay more than women), age at the time of application, health conditions and whether one uses tobacco products.
As an example, a male age 40 (non-smoker) seeking a cash benefit payment of $10,000 would pay between $180 and $200-a-year for critical illness insurance. Smokers will pay about 50 percent more. A female age 50, purchasing $20,000 of coverage, will pay about $350 a year. Rates for smokers increase significantly after one reaches age 50.
Deciding how much critical illness insurance protection to buy is clearly a personal decision. A simple way to approach the matter is to multiply your monthly mortgage payment by 24 (2 years worth). Imagine the peace of mind of knowing you’ll be mortgage-payment free while you recover and undergo treatment.
A number of insurers will issue up to $50,000 or critical illness insurance coverage without a medical exam. Referred to as simplified issue, this is a good way to go for the vast majority of individuals. It is also the most affordable and a good place to start the processing of considering this highly important form of protection.
To view pricing for critical illness insurance use the free cost calculator on the Consumer Information Center of the American Association for Critical Illness Insurance.
