Critical illness insurance is a specialized type of insurance policy that provides a lump sum, tax-free payment if the policyholder experiences one of the critical illnesses outlined in their policy.

  • Cancer, heart attack, and stroke are the most common critical illnesses to be covered. Some policies will also provide financial protection for the medical costs associated with other conditions such as: kidney failure, organ transplants, paralysis, angioplasty, or coronary bypass surgery.

How does critical illness insurance differ from health insurance and disability insurance?

Critical illness insurance, health insurance, and disability insurance all provide financial protection in the event of an injury or illness. However, the purpose of these policies and the amount and form of their financial protection varies.

  • Critical illness insurance is meant to supplement your existing health and/or disability insurance policies by providing flexible, financial protection in the event of an unexpected and catastrophic illness. Critical illness insurance provides policyholders with a single tax-free, lump sum payment that can be used in whatever way is most beneficial, whether that is paying for medical costs not covered under your health insurance, supplementing your income, or even covering your mortgage payments while you are unable to work.

  • Disability insurance ensures that policyholders continue to receive income if they suffer from an injury that prevents them from working. Like critical illness insurance, disability insurance policies directly provide their policyholders with payments, though these are typically provided in biweekly payments and depend on the individual’s income prior to the accident.

  • Health insurance helps cover costs associated with routine or emergency medical care. Typically, health insurance companies work directly with healthcare providers so that you do not incur any expenses out of pocket at the time of treatment. Unless an individual is seeking reimbursement for medical care, policyholders typically do not receive payments from their health insurance policy.

If you already have a policy, or if you are thinking about purchasing critical illness insurance, make sure to do your research first. Continue reading to learn about the six most important things you should know about potential pitfalls and claim denials associated with critical illness insurance policies.

1) Critical illness insurance will only provide payments after the “survival period”. Critical illness insurance policies often have what is called a “survival period”. This refers to the length of time a policyholder must wait, or “survive”, after experiencing, or being diagnosed with, a critical illness before their insurance company will issue its lump-sum payment. The length of the survival period will vary across critical illness insurance policies, though most survival periods are around 30 days. Many critical illness insurance policies also have a “waiting period” of around 90 days. This refers to how long after purchasing a critical illness insurance policy the policyholder must wait before they can successfully submit a claim.

2) Some critical illness insurance policies have “age-reduction schedules”. If you’re thinking about purchasing a critical illness insurance policy, make sure to read the fine print. Some policies have an “age-reduction schedule” that causes your potential payout to decrease as you get older.

3) Know the specific definition of the critical illnesses covered in your policy. One of the most common reasons a critical illness insurance claim can be denied is because the illness that the policyholder experienced doesn’t match the definition of the illness covered under their policy. For example, although cancer is one of the most common critical illnesses to be covered, some critical illness insurance policies will limit benefits depending on the type of cancer. An insurance company may pay full benefits for an invasive tumor, partial benefits for cancer in situ, or may even deny benefits altogether for indolent cancer.

4) Know which critical illnesses are excluded from your policy. Every critical illness insurance policy should outline which injuries are not considered a critical illness under your policy. Common exclusions include critical illnesses that result from substance abuse, self-inflected injuries, or failing to adhere to your doctor’s orders.

5) Be thorough and honest in your application. When applying for critical illness insurance, be honest and as thorough as possible about your medical history. This is essential for being able to successfully submit a claim later on. If your insurance company discovers that you failed to report important medical information (either intentionally or accidentally) on your application, they may deny your claim for coverage even if you’ve been paying your premiums all along. Some insurers don’t always undertake extensive investigation into your medical history, so make sure you go out of your way to include your full medical history to prevent yourself from being accidentally disqualified from receiving benefits if you ever need to submit a claim.

6) You have options for purchasing critical illness insurance. This type of insurance coverage can either be purchased individually or as an additional component to an existing life insurance policy. You may also be able to obtain critical illness coverage through your employer. The cost of a critical illness insurance policy will also vary depending on your age and medical history, the illnesses covered, and the degree of financial protection you would like. Depending on the type of policy you select, yearly premiums can range between $150 and $400. There are two types of critical illness coverage that will affect the cost of your premium:

  • “Simplified issue” policies cover fewer illnesses, require less medical information at the time of the application, and typically provide a lump-sum payout up to $50,000.

  • “Fully underwritten” policies offer financial coverage up to $500,000. However, your insurer will require your detailed medical history at the time of the application.

If your critical illness insurance claim was denied, speak to one of our helpful claim advisors today to see if we can help.

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American Association for Critical Illness Insurance. “Critical Illness Insurance For Individuals.”

American Association for Critical Illness Insurance. “Do I Really Need Critical Illness Insurance?” “Top 5 Reasons Why a Critical Illness Claim is Denied.” “Critical-Illness Insurance: Is It Worth the Cost?” August 2014.

Investopedia. “Disability Insurance.”

Investopedia. “Health Insurance.”

Mehta, Kapil. Live Mint. “Critical Illness Diagnosed In Waiting Period Is Not Covered.” December 2013.

O’Brien, Elizabeth. MarketWatch. “Is Critical-Illness Insurance Worth The Money?” August 2013.

Phillips, Liz. The Guardian. “Critical Illness Insurance: The Neglected Cover That Could Be Crucial.” December 2013.