If you have a critical illness, you might have to cover out-of-pocket costs. But fortunately, a critical illness insurance policy can help. A critical illness insurance policy is purchased as a supplement to your life insurance.
It’s broader than traditional health insurance and pays out-of-pocket costs that go beyond medical bills. But what exactly is a critical illness policy, how much is it, and how does it work?
Critical Illness Insurance Policies
According to HealthInsurance.org, critical illness insurance is a type of supplemental policy. It pays cash benefits to a policyholder if they’re diagnosed with a covered medical condition. UnitedHealthcare states that some critical illness conditions that policies cover expenses for include:- heart attack
- stroke
- organ failure/transplant
- advanced Alzheimer’s disease
- renal failure
- internal cancers
- coma
- loss of hearing, speech, or vision
It’s designed to be used in addition to major medical health insurance. Critical illness insurance is not adequate to be used as the only source of your health coverage.
How Does Critical Illness Insurance Work?
According to HealthInsurance.org, critical illness insurance policies offer varying benefits and a choice of lump-sum, monthly, or per-treatment benefits. You might see lump-sum critical illness policies that offer optional add-on riders for additional monthly and/or per-treatment amounts.When diagnosed with a covered medical condition, you’ll receive cash benefits according to the policy you purchased. The benefits are paid directly to you, and you can use the money any way you want. According to UnitedHealthcare, expenses that can be covered include:
- mortgage payments
- medical bills
- transportation to and from treatment
- living expenses
- prescriptions and other medications
According to Anthem, critical illness insurance has a monthly premium, and the amount of the premium is determined by your age, general health and risk factors, number of illnesses covered by plan, individual or family plan, and whether you use tobacco products.
Critical Illness Insurance Cost
According to Aflac, the cost of a critical illness policy increases with age. You typically pay a specific rate for every $5,000 coverage benefits.For example, if you are a 50-year-old Aflac customer, you will pay $5.88 for every $5,000 of coverage you purchase. A $25,000 policy limit will cost you $29.40 per month.
The premium increases with age. For example, a 65-year-old will pay $12.47 per month. A $25,000 policy will cost $62.35 monthly.
How Long Should You Keep Critical Illness Insurance?
How long you keep your critical illness insurance policy depends on your lifestyle. If you have a mortgage or childcare costs, you might want to keep the policy during the duration of these expenses. Likewise, you may want a critical illness policy if you don’t have an emergency fund for health expenses.But according to UnitedHealthcare, there is a limit on how long you can keep a policy. Depending on the insurance carrier, you can keep your coverage up to age 70. But after 65, your remaining maximum lifetime benefit is reduced by 50 percent. But you can still keep the plan up until 70.
Are Critical Illness Insurance Benefits Taxed?
According to the Internal Revenue Service, a critical illness policy is treated as accident or health insurance. Benefits received under the critical illness insurance rider are excluded from the recipient’s gross income under section 104 (a)(3) of the code to the extent they are attributable to the recipient’s after-tax contributions.In other words, you must have paid the premiums using after-taxed income. If the premiums were pretax—meaning they are paid by your employer or deducted from your paycheck before taxes—then the benefits would be taxable.
There are other caveats, so you should consider consulting an accountant before purchasing a critical illness policy.
Benefits of Critical Illness Insurance
There are several benefits to purchasing a critical illness policy. Compared to the cost of health insurance, critical illness insurance is usually affordable. This means you can supplement your current health insurance plan without paying too much in premiums.Use the payout from critical illness insurance to pay expenses that traditional health insurance doesn’t cover.
You’ll be able to protect your family financially in the event you’re diagnosed with a critical illness, and you’ll be able to cover expenses while you go through treatment. That should give you at least some peace of mind.
Is Critical Illness Insurance Worth It?
Critical illness insurance is a low-cost supplemental coverage that can complete your health insurance coverage. It pays cash benefits to help cover medical expenses not covered by typical health insurance plans. You also may use it for non-medical expenses.It’s wise to consult with your accountant to see the tax implications of the paid benefits before purchasing a policy.
The Epoch Times copyright © 2026. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
