What Is Critical Illness Insurance? A Guide for Employers

What is critical illness insurance?

Critical illness insurance provides a lump-sum payment when an employee receives a catastrophic diagnosis. Review policy documents to confirm which illnesses are covered, any waiting periods and how the payout amount is calculated to ensure coverage meets employees’ needs. Policyholders can use the money for medical bills or lost wages. Most cover these illnesses:

Heart attack
Paralysis
Cancer
Coronary bypass surgery
Stroke
Kidney failure
Organ transplant
Heart transplant
Parkinson’s
Lou Gehrig’s disease
Multiple sclerosis

Most insurance companies clearly state which illnesses they cover and which they don’t with critical illness insurance. The size of the payout can depend on the type of illness and its severity.

Why you should consider offering critical illness insurance to your employees

Many businesses offer critical illness insurance coverage as an option to their employees. Generally, employers can get group policies to provide to their employees rather than individual policies, which lowers rates for everyone and can make enrollment easier. Interested employees can opt in to receive coverage if they want it or opt out if they don’t. In most cases, the employee pays the cost of the premium.

The offer benefits employees since if employees had to find critical illness insurance on their own, they’d likely face medical questionnaires and higher rates than going through their workplace policy. For employers, you get the benefit of offering your employees a helpful insurance policy, but at very little to no cost to the company.

You can help your employees maintain peace of mind during a severe illness by offering inclusion to a critical illness insurance policy, which can help them pay for:

Living expenses
Childcare expenses
In-home care
Health insurance co-pays and deductibles
Treatment costs not covered by health insurance
Travel back and forth from treatment

How critical illness insurance works

Critical illness insurance functions similarly to other insurance policies. Policyholders pay a monthly premium to retain the policy. If they need coverage, they file a claim to receive their money. Policy specifics differ, but most provide a lump sum payment, most frequently in the range of $10,000 to $50,000, to help the policyholder manage expenses while they seek treatment and recover from their critical illness.

The premium policyholders pay depends on several factors, such as:

Age
General health
Risk factors
Policy type (such as standalone or supplement)
Tobacco use and smoking

Policy documents should include information regarding:

Conditions, diseases and illnesses covered under the policy
How to qualify for a payout
Whether there’s a waiting period to receive the money
The length and conditions of the waiting period
How the total payout is calculated
Next steps if the illness recurs

When the policyholder files their claim, the insurance company will review the claimant’s needs and their policy and issue a payout. It may be the full value of the benefit or a percentage of it.

Most critical illness insurance policies are only good for one maximum benefit payout. That means if your employee has a heart attack and uses 50% of their maximum benefit and a year later needs a heart transplant, at that point, they’ll only be able to access the remaining 50% of the benefit.

What types of critical illness insurance can employers offer?

Employers can offer simplified issue, fully underwritten policies, or add a policy rider, each with different payout levels and underwriting requirements. Discuss options with your insurance provider to choose the best fit. Simplified issue is generally lower-cost with limited medical review, fully underwritten offers higher maximum payouts with extensive medical history requirements and riders attach to existing policies. Each provides different benefits and considerations:

1. Simplified issue individual or group

This is the most common type of critical illness insurance, as it’s the most inexpensive. Most simplified issue policies have a maximum payout of $50,000. Simplified issue insurance policies don’t usually require any intensive medical histories from the policyholder to obtain coverage and monthly premiums are generally low.

2. Fully underwritten individual or group

Fully underwritten policies offer a much higher payout for policyholders, usually up to $500,000. In most cases, the insurance company will require an extensive medical history in order to award you a policy close to the maximum payout amount. Monthly premium payments also go up with this policy.

3. Policy rider

These endorsements attach to an existing insurance policy. The benefit of a policy rider is that you can add it any time, even if it’s not your normal window for choosing insurance. The specifics of a critical illness insurance policy rider vary by insurance agency.

How much does employer-provided critical illness insurance cost and who typically pays?

Costs vary by policy type, group size and benefit amount, and employees typically pay the premiums for employer-provided critical illness insurance. Request quotes from your benefits provider for simplified versus fully underwritten plans to compare monthly premiums and expected employee costs. Simplified policies usually carry lower monthly premiums while fully underwritten plans cost more for larger payouts.

In most cases, employers pass the full cost of critical illness insurance to the employees who want the coverage. Some employers might pay for a percentage of the monthly premium if it’s otherwise unattainable for their employees.

For simplified policies, employees can expect to pay anywhere from $15 a month to $125 a month for a policy. The monthly premium is less for lower benefit policies and higher for larger payouts. For fully underwritten policies, employees can expect to pay upwards of $150 per month, depending on the total amount of the policy’s benefit.

Critical illness insurance is a worthwhile benefit to provide to your employees. Consider speaking with your current providing insurance company about the costs of adding a critical illness insurance policy to your group coverage.

What Is Critical Illness Insurance? A Guide for Employers

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