Terry Turner, Financial writer for Annuity.org
  • Written By
    Terry Turner

    Terry Turner

    Senior Financial Writer and Financial Wellness Facilitator

    Terry Turner is a senior financial writer for Annuity.org. He holds a financial wellness facilitator certificate from the Foundation for Financial Wellness and the National Wellness Institute, and he is an active member of the Association for Financial Counseling & Planning Education (AFCPE®).

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    Savannah Pittle
    Savannah Pittle, senior financial editor for Annuity.org

    Savannah Pittle

    Senior Financial Editor

    Savannah Pittle is an accomplished writer, editor and content marketer. She joined Annuity.org as a financial editor in 2021 and uses her passion for educating readers on complex topics to guide visitors toward the path of financial literacy.

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  • Updated: August 9, 2023
  • 8 min read time
  • This page features 4 Cited Research Articles
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APA Turner, T. (2023, August 9). What Is Critical Illness Insurance and Do I Need It? Annuity.org. Retrieved June 22, 2024, from https://dev.annuity.org/retirement/health-care-costs/critical-illness-insurance/

MLA Turner, Terry. "What Is Critical Illness Insurance and Do I Need It?" Annuity.org, 9 Aug 2023, https://dev.annuity.org/retirement/health-care-costs/critical-illness-insurance/.

Chicago Turner, Terry. "What Is Critical Illness Insurance and Do I Need It?" Annuity.org. Last modified August 9, 2023. https://dev.annuity.org/retirement/health-care-costs/critical-illness-insurance/.

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Serious illnesses such as cancer and heart disease are leading causes of death that impact millions of Americans yearly. In addition to negative health impacts, a critical illness such as these can result in hefty medical bills. However, a critical illness insurance policy can help keep you financially afloat so you can focus on recovery.

What Is Critical Illness Insurance?

Critical illness insurance definition & infographic

Critical illness insurance is a long-term insurance policy that compensates insureds with a lump-sum payout when they’re diagnosed with a serious health condition detailed in the policy. Most plans include coverage for cancer, heart disease and stroke. Since patients with a critical illness often face extreme financial burdens, this insurance type functions as a safety net.

Critical Illness Insurance vs. Disability Insurance

Critical Illness Insurance vs. Disability Insurance

Critical illness and disability insurance each provide financial aid for people diagnosed with a serious illness. But while critical illness insurance has a limited list of diseases included in coverage, disability insurance covers any disease or injury that prevents you from working. 

That said, disability insurance typically offers lower monthly payouts, while critical illness insurance offers greater lump-sum compensation. 

Put simply, critical insurance offers limited coverage with larger payouts, while disability insurance offers broad coverage for less financial compensation on average. 

Enrolling in both options could be the right choice if you don’t mind spending more for more comprehensive coverage and peace of mind.

How Does It Work?

Critical illness insurance policies vary from provider to provider but work relatively the same. The policy will outline a list of critical illnesses that qualify for compensation. If you are diagnosed with one of those illnesses, you receive a lump-sum benefit that you can use for any expense.

What Does Critical Illness Insurance Cover?

While there’s no universally accepted list of critical illnesses, here are some of the common illnesses listed on insurance policies:

  • AIDS
  • Alzheimer’s disease
  • Bacterial meningitis
  • Brain tumors
  • Cancer
  • Chronic liver disease
  • Chronic lung disease
  • Coma
  • Coronary artery disease that requires surgery
  • Encephalitis
  • Extensive third-degree burns
  • Fulminant viral Hepatitis
  • Heart attack
  • Heart disease
  • Kidney failure
  • Major organ transplant
  • Motor neuron disease
  • Multiple sclerosis
  • Muscular dystrophy
  • Paralysis
  • Parkinson’s disease
  • Polio
  • High blood pressure
  • Stroke
  • Total or permanent blindness
  • Total or permanent deafness
  • Total or permanent loss of speech

Typically, the more you pay on your premium, the more coverage you’ll have.

Talk to your insurance provider for more information about your critical insurance coverage. Remember that you’ll have to provide proof of your critical illness with blood tests, MRIs or CT scans when necessary.

The Benefits

Benefits of Critical Illness Insurance

Advantages of critical illness insurance include:

Peace of Mind
In the event of a serious diagnosis, it’s good to know you’ll have assistance to pay your medical bills
Cost
Premiums are typically lower than general health insurance plans.
Lump-Sum Payouts
Typically, policies compensate you with lump-sum payouts when you’re diagnosed.
Flexible Spending
When your policy pays you out, there are no limits on where you can spend your money. You can use your payout on transportation, child care, medical bills or anything else.
Tax-Advantaged
If you pay for your premium with after-tax income, you likely won’t pay taxes on your benefits.

But critical illness plans aren’t for everyone. They also have their disadvantages.

The Disadvantages

Critical illness insurance coverage is narrow compared to other types of insurance. If you’re diagnosed with a disease that your policy doesn’t detail, you won’t receive compensation. In contrast, disability insurance will pay out for any injury or illness that makes you unable to work, including many diseases that would qualify as critical illnesses.

Additionally, even if you are diagnosed with an illness detailed in your critical illness policy, you still might not receive coverage if the condition isn’t severe. For example, some policies may stipulate that if you’re diagnosed with cancer that hasn’t spread, you won’t yet receive your payout until it does.

Coverage Costs

Cost Factors Infographic

The cost of a policy will vary depending on:

  • Your age and gender
  • Your family medical history
  • Where you live
  • Where you work
  • If you smoke
  • The amount of your lump-sum benefit

As you age and your risk for critical illnesses increases, the cost of your premium will increase and your benefits could decrease. If you’re a smoker or have a family history of diseases covered by your plan, these factors could also increase your premium. 

Generally, these policies are less expensive than a traditional health insurance policy since the coverage you receive is narrower. Critical illness insurance premiums can start as low as $25 per month and reach as high as $200, depending on your risk factors and level of coverage.

You can also pay a higher premium for a greater payout. Depending on your policy and premium, you could receive a lump sum ranging from a couple of thousand dollars to $100,000.

Do I Need Critical Illness Coverage

Critical Illness coverage could be right for you if you:

  • Have a family history of critical illness
  • Don’t have and can’t afford a traditional health insurance policy
  • Want more coverage in addition to your health insurance policy
  • Want the peace of mind that you will be safe in the event of a serious diagnosis

While you won’t truly know whether you need coverage or not until you’re diagnosed with an illness, it’s worth investing in a policy if it provides you peace of mind.

Buying Coverage

You can either add critical illness coverage to your personal life insurance plan or purchase it through your employer. 

Before buying coverage, ask the following questions:

  1. What illnesses will be covered by the plan?
  2. What is the process for filing a claim?
  3. Will you receive compensation in monthly payments or a lump sum?
  4. Will you receive coverage if your illness returns after you recover?
  5. Is there a waiting period before compensation?

Knowing the answers to these questions will help you understand what you’re paying for and whether it’s worth it.

5 Tips To Cope With a Serious Diagnosis

Tips to Cope With a Serious Diagnosis

Receiving a serious diagnosis can completely disrupt your life. For example, patients with cancer might experience fatigue, nausea, anorexia and other side effects, which can be mentally and physically draining. 

Terminal illnesses can prevent you from working, engaging in habits you’re passionate about or stress you out to the point that you don’t want to get out of bed. 

Major health complications might cause you to feel despair, grief, anger, frustration and a myriad of other difficult emotions. These reactions are natural and often unavoidable, but there are ways to cope with your new living situation.

Here are some tips for coping with a serious diagnosis:

Seek support:
Reach out to friends and family to remember you aren’t alone.
Find a source of joy:
Try to pursue hobbies and activities that bring your happiness and a sense of purpose.
Care for yourself:
Don’t forget to eat, sleep and stay active as much as possible. Regular exercise can help you reduce symptoms of anxiety and depression, while eating the right foods correlates to better feelings of well-being. 
Understand the facts:
Researching your illness and how it will impact you mentally and physically will help you prepare for its symptoms.
Express yourself:
Talk with loved ones, write in a journal or engage in a creative outlet to express your feelings. 

It isn’t easy to deal with a serious diagnosis, but by caring for yourself and finding sources of joy and support, you can minimize feelings of anxiety and depression.

Next Steps

Critical illness insurance can help provide you with peace of mind that if you’re diagnosed with an illness on your policy, you can pay your medical bills. Critical illness insurance is more expensive for older adults and may feature fewer benefits. 

For more information about critical illness insurance, check out the infographic below.

Before buying a policy, research your insurance options to see what plan would work best for you. If you’re worried about your family’s financial well-being if something happens to you, it could be worth looking into life insurance.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: August 9, 2023

4 Cited Research Articles

Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.

  1. Jiaquan, X. et al., (2022 December). Mortality in the United States, 2021. Retrieved from https://www.cdc.gov/nchs/data/databriefs/db456.pdf
  2. Siegel, R. et al., (2023, January). Cancer statistics, 2023. Retrieved from https://pubmed.ncbi.nlm.nih.gov/36633525/
  3. Ross, D., & Alexander, C. (2001, September 1). Management of Common Symptoms in Terminally Ill Patients: Part I. Fatigue, Anorexia, Cachexia, Nausea and Vomiting. Retrieved from https://www.aafp.org/pubs/afp/issues/2001/0901/p807.html
  4. Shaojuan, H. et al., (2020, November 4). Beneficial Effects of Exercise on Depression and Anxiety During the Covid-19 Pandemic: A Narrative Review. Retrieved from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7671962/