Critical illness insurance vs. life insurance: What’s the difference?

Both types of supplemental insurance can help you and your family. Learn what each does, how they compare, and which one may be a fit for you at this time.

Life can be full of surprises. There are happy ones like a job promotion or meeting the love of your life. Then there are the not-so-great ones like an unexpected illness or accident.

Both critical illness insurance and life insurance provide benefits for these unexpected moments. If you get very sick, critical illness insurance can help you pay for doctors and medicine so you can focus on getting well. Life insurance can help your family financially when they need it most.

While both types of supplemental insurance are useful, they serve different purposes. Before reading about the differences, learn what each one is — and which type would fit your needs now.

Find out how critical illness insurance can help pay medical bills and more if you get sick.

What is critical illness insurance?

Critical illness insurance isn’t medical insurance. It’s not meant to stand alone or to replace a traditional health plan. Instead, it’s a type of supplemental insurance. You can have supplemental plans in addition to your existing traditional health insurance coverage, and supplemental plans can help you pay for out-of-pocket costs. (There is a monthly premium for supplemental insurance that is not included in what you’d pay for your primary health insurance.)

Critical illness insurance typically pays what’s called a lump sum benefit — the amount of money that’s paid to you or your provider all at once — if you get a covered serious illness. These illnesses can include cancer, heart attack, stroke or dementia. It can also cover things like hearing or vision loss.

When you are shopping for critical illness insurance, you typically choose one of several benefit amounts. For example, one amount could be $10,000, another $30,000 or $50,000. The higher the benefit level, the higher your monthly premium. The monthly premium will also cost more the older you are, and if you smoke.

You can use the money as you see fit, including:

• For medical bills or treatments.
• Everyday expenses, like the mortgage or even groceries

What is life insurance?

Life insurance is another type of supplemental insurance designed to help your family. A life insurance policy pays a lump sum benefit to a beneficiary — usually a spouse or family member — when you die.

Your beneficiaries can use this lump sum payment in a number of ways, including:

• To pay for your funeral costs
• To pay household expenses, like the mortgage
• To pay for childcare or school tuition

There are two types of life insurance: term life insurance and whole life insurance. When you choose a term life insurance policy, you buy it for a set amount of time. Typically, that’s for 10 or 20 years.

Whole life insurance is permanent. That means it covers your entire lifetime. It’s usually more expensive than term life insurance.

How does critical illness insurance compare with life insurance?

Both are types of supplemental insurance. Here is a rundown on how each works.

They both pay benefits. Both types of supplemental insurance provide a lump sum benefit, which you or a family member can spend on a range of medical or non-medical expenses. There are differences though.

• With critical illness insurance, the lump sum goes directly to you if you’re the policy holder. You decide how to spend this benefit.
• With life insurance, the benefit goes to someone you’ve chosen, usually a family member. They choose to use the money however they see fit.

They both give you coverage. But when that coverage begins is different for both.

• Critical illness insurance covers you when you develop a serious illness — as long as you’ve had the plan for at least 30 days. The illnesses that are covered are usually spelled out in the policy. But you need to buy a policy before you get diagnosed. This type of insurance won’t cover pre-existing conditions.
• Term life insurance pays a benefit after you die. But the cause of death isn’t usually important.

Both have beneficiaries. A beneficiary is the person who benefits from the supplemental insurance policy. This would be the person who receives the lump sum benefit.

• With critical illness insurance, you are the beneficiary. You can also add your spouse and children to the policy.
• With term life insurance, your beneficiaries are the people you choose. You can pick anyone you want — your partner, your children, a friend, or even a charity or organization. Whoever you pick will get the lump sum when you die.

Thinking about the future? Type in your zip code or call (800) 827-9990 to talk to a licensed insurance agent to learn about your insurance options.

Can you combine critical illness and term life insurance with other insurance plans?

Yes, you can combine critical illness insurance and term life insurance plans with health insurance plans. These include:

• High Deductible Health Plan (HDHP). High deductible health plans are popular health insurance plans. They feature lower monthly premiums than other traditional health insurance plans. But the deductibles are usually much higher. For that reason, you might consider pairing an HDHP with critical illness insurance. A critical illness insurance policy could help cover out-of-pocket medical costs, like a long hospital stay.
• Short term medical insurance. Short term medical insurance can fill a gap between major medical policies for a limited period of time, which is 3 months + 1 month extension for a maximum coverage period of no more than 4 months. By adding a critical illness insurance policy, you could use that money to pay for medical expenses like deductibles, copays or coinsurance if you were diagnosed with an illness that’s covered by the policy.

You can also combine critical illness insurance and term life insurance with each other. How? By adding a critical illness rider to your term life insurance. (A rider is an add-on to an insurance policy that changes it in some way, usually by offering extra benefits.)

When you add a critical illness rider to your term life insurance policy you’ll get extra benefits if you develop a serious illness, like cancer, while you’re alive. But the payment is typically subtracted from your term life insurance benefit.

Who should consider critical illness insurance and term life insurance?

Critical illness insurance can be a good choice if you want to be prepared for a serious illness. This is especially true if certain diseases — like heart disease — run in your family.

Even if not, consider these risk factors. This year, the American Cancer Society estimates that over 2 million Americans will be diagnosed with cancer. And someone has a heart attack every 40 seconds, according to the Centers for Disease Control and Prevention.

Critical illness insurance can help you:

• Pay for medical treatments.
• Cover daily living expenses if you can’t work.
• Get the care you need with less financial stress.

Life insurance is essential if you want to make sure your family has money for expenses after you die. Consider getting a term life insurance under the following circumstances:

• You just had your first child
• Your salary pays for most of the household expenses
• You just got a big raise, job promotion or both
• You’re a stay-at-home parent, and your spouse would have to get outside help to cover childcare and other household expenses

Deciding between critical illness insurance and life insurance depends on your needs. But you may choose both types. This way, you’ll be prepared for the unexpected, whatever form it takes.

Deciding which type of supplemental insurance is a good fit for your needs and budget is just a phone call away. Call (800) 827-9990 to talk to a licensed insurance agent.

For informational purposes only. This information is compiled by HealthMarkets Insurance Agency and does not diagnose problems or recommend specific treatment. Services and medical technologies referenced herein may not be covered under your plan. Please consult directly with your primary care physician if you need medical advice.