Critical Illness Insurance
Critical Illness Insurance is not the same thing as Long Term Disability (or LTD) insurance. It resembles "Death and Dismemberment" insurance, in that it pays out the full amount of the coverage as soon as you are diagnosed with a critical illness covered by the policy. It also pays a set amount; which you can count on regardless of the outcome of your illness.
So how is Critical Illness Insurance a benefit to you? If you are covered by Critical Illness Insurance and you have to collect for a covered condition, your policy will be paid in full. Better yet, this money is typically paid in a lump sum. This way you can use it for what's most important to you. For example, you can use your benefit's to cover unconventional treatments, travelling costs, specialized treatments, for the kids' college tuitions, or to pay off your mortgage. It's up to you.
Many consumers feel that Disability Insurance offers adequate protection in the event of a critical illness and that Critical Illness Insurance is unnecessary. However, since disability insurance is geared to your current wages, it will only give you a percentage of that wage. You may find that this is simply not enough.
LTD usually pays a regular monthly benefit based on a percentage (often 67%) of your monthly-earned income before you become disabled. Before benefit's are paid, a doctor's diagnosis must confirm the disability and the insured individual must complete the waiting period; which is typically 90 to 120 days from the onset of the disability - depending on the policy. Depending on how you pay for your LTD, your benefit's may or may not be tax-free.
Given the waiting period required, you may never collect LTD. The only coverage that would provide benefit's during a shorter period would be your short-term disability insurance. Short Term Disability (or STD) has similar restrictions to LTD. Benefit's are typically based on a percentage of your wages. STD insurance also has a waiting period.
Critical Illness Insurance differs because it usually pays out a one-time lump sum benefit. There are approximately 23 critical illnesses covered under the Critical Illness Insurance policy - including cancer, heart attack, stroke, Alzheimer's, Parkinson's, and multiple sclerosis. You will still need a doctor's diagnosis to confirm the condition, and you may have to complete a survival period; which lasts typically 30 days from the initial diagnosis. However, no other disability, permanent or otherwise, is required to qualify for benefit's with Critical Illness Insurance.
Therefore, the biggest advantage cited for Critical Illness coverage is that it provides cash upfront. Furthermore, you decide what to do with the benefit's and you aren't restricted once you've received them.
According to the May 20, 2002 edition of National Underwriter, two thirds of the costs to cancer patients relating to their illness in 2000 were for indirect expenses. These expenses included nursing care, medical care, day-to-day living expenses, and travel costs in order to receive treatments, home health care, child care and other expenses not covered by other health plans. The costs of these kinds of indirect expenses are considerable.
This is why Critical Illness Insurance can be an excellent addition to your current insurance coverage. It provides money up front, so that you can focus on health and recovery, rather than worrying where the next mortgage payment is coming from.