Pros and Cons to Critical Illness Insurance—Coverage, Explained

It’s natural to want protection against unexpected expenses, but should you get critical illness insurance? Is that protection worth the added monthly premiums?

Those are good questions to ponder, especially as 62 percent of large companies offered critical illness insurance coverage as of 2019—up from 46 percent two years prior, according to Reuters.

But just because critical illness insurance has been catching on doesn’t mean it’s necessarily right for you. As with any insurance add-on, you should determine if the benefits of critical illness insurance outweigh the cost.

“Companies that provide this coverage should fully disclose the risks and the likelihood you would ever use it,” Timothy Jost, law professor emeritus at Washington and Lee University, told Consumer Reports in 2016. “There needs to be protection for consumers to ensure that they’re getting value for their coverage.”

As MetLife defines it, critical illness insurance pays you a lump sum of money—anywhere from a few thousand dollars to $100,000—if you have a serious illness or medical event like a heart attack, a stroke, a cancer diagnosis, or even COVID-19, depending on the plan.

It’s different from disability insurance, which pays you a percentage of your pre-disability salary. However, Policygenius points out that disability insurance benefits last longer, offer bigger payouts, and cover more ailments.

Critical illness insurance is also different from health insurance, which reimburses healthcare providers. With critical illness insurance, the money goes to you, and it’s yours to spend on medical or even non-medical expenses.

“The funds can go toward anything you need, like toward seeing a specialist, or if a medical insurance provider doesn’t pick up the entire cost, or if rehabilitation sessions exceed what medical insurance allows,” MetLife explains. “You can even use the money to pay off bills and buy food—you decide how to spend it.”

On one hand, critical illness insurance can help cover medical expenses for patients with high-deductible health insurance plans. The insurance can also help cover mortgage and rent payments. However, it shouldn’t be viewed as a replacement for a traditional healthcare plan, Jost told Reuters.

“These ancillary products are marketed to wrap around your major medical plan, as deductibles have risen,” added Sabrina Corlette, co-director of the Georgetown University’s Center on Health Insurance Reforms.

There are some caveats to consider. Betsy Imholz, the special projects director at Consumers Union, told Consumer Reports that critical illness insurance doesn’t offer some of the protections that traditional health plans do. For example, a critical illness plan doesn’t have to cover pre-existing conditions like traditional health plans do. Critical illness plans are also more likely than traditional plans to charge higher premiums as members get older, according to the magazine.

There are cancer-only critical insurance plans that won’t cover other illnesses. “People greatly overestimate their risk of getting cancer at any one time compared to getting lots of other conditions that are less frightening but also very expensive,” Jost told Consumer Reports.