safety net for critical illness

Critical Illness Insurance: A Voluntary Benefit That’s Here to Stay

Ilima Loomis

A tale as old as time: When you’re facing a serious medical problem, regular health insurance may not be enough to cover all the costs.

Employer-provided health plans became widely adopted during World War II. At the same time, in addition to the rising costs of medical care, a few employment trends were taking place:

  • Labor shortages compelled companies to offer insurance coverage to attract workers.
  • Unions were negotiating for increased benefits.

But even these plans didn’t fully support individual needs in the event of some major illnesses. Critical Illness insurance as we know it today was developed to fill this gap. It was designed so people could get life-saving medical care without being financially wiped out. As healthcare costs continue to rise, that need is only growing. Keep reading to understand whether this safety-net coverage is something you should consider investing in.

Key Takeaways:

  • Critical Illness insurance—sometimes called Catastrophic Illness insurance— typically pays out a lump sum when you’re diagnosed with one of several life-threatening illnesses.
  • You can usually use the money however you need it most, from copays, to hospital bills, to day-to-day living expenses.

How Critical Illness Insurance Got Started

Dr. Marius Barnard, a South African heart surgeon, is credited with developing modern Critical Illness insurance. Barnard said he was motivated by his patients’ financial hardship that resulted from medical issues.

He stated that, while doctors could heal a person’s body, insurance could heal their finances. Barnard worked with insurance companies to develop a new kind of coverage. He launched the first Critical Illness insurance policy in 1983. In the years that followed, the need for Critical Illness insurance grew as advances in medicine and medical technology helped more people survive more medical issues.

Rising Healthcare Costs

Standard Health Insurance premiums are now a major cost for many Americans:

  • The average annual premium for an employer-based family health plan was more than $20,486 in 2019. That’s up a bit under 5% from the previous year.
  • The increasing cost of coverage has led to a shift toward high deductible health plans (HDHP).
  • While these plans have lower premiums, they come with a high out of pocket deductible.

For plans sold on the Health Insurance Marketplace, out-of-pocket costs can be up to $8,550 for an individual or $17,100 for a family. That’s a big financial hit for most Americans—and they’re worried about it.

According to a 2020 report, 66% of Americans said the cost of healthcare was a stressor in their lives.

How Critical Illness Insurance Works

You’re paid a lump sum when diagnosed with any of the life-threatening health conditions listed in your policy. The average payment per claim is $12,028 for individual Critical Illness insurance. Covered conditions may include things like:

  • invasive and non-invasive cancers
  • heart attack
  • stroke
  • coronary bypass
  • organ transplant
  • bone marrow transplant
  • renal failure

You can typically use the benefit however you need it most. That includes out-of-pocket medical costs, like copays for doctor’s visits and lab services. It also includes your share of the hospital bill and your deductible. You can also pay for expenses that health insurance wouldn’t normally cover. These can include:

  • travel to a major treatment center
  • hotel for a family member who travels with you for treatment
  • retrofitting your car or home to make it more accessible
  • living expenses if you need to take time off for treatment
  • rehabilitation services or in-home care
  • vacation to relax and recuperate after surgery


Critical Illness insurance is different from a Hospital Indemnity plan.

Hospital Indemnity coverage is triggered when you check into a hospital and pays out a certain amount for each day of your stay.

Critical Illness insurance pays a benefit when you’re diagnosed with certain illnesses or health conditions.

Financial Protection for Illness

Critical Illness insurance can help protect your income in the event of a major health concern like cancer, heart attack, and stroke. As the popularity of these plans continues to rise, expect to see Critical Illness insurance around for years to come.

Is Supplemental Insurance Worth It?

If extra coverage that protects you during life’s uncertain moments is important to you, then the answer may be yes.

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