Q:

What is critical illness insurance?

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Quick Answer

Critical illness insurance provides a tax-free lump sum payment if a policy holder contracts a covered disease, according to the American Association of Critical Illness insurance. Critical illness insurance is available to individuals and through group plans offered by an employer. This type of insurance was developed in the 1990s to help policy holders cover the costs of such extreme circumstances.

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Full Answer

The three main types of critical illnesses that critical illness insurance covers are heart attacks, cancers and strokes, explains the American Association of Critical Illness Insurance. This type of insurance coverage is also available for other serious illnesses and may also cover procedures such as renal failure, paralysis, coronary bypass surgery and organ transplant.

Critical illness insurance makes cash available to individuals at the time when they may incur hefty medical bills and be unable to work, reports the American Association of Critical Illness insurance. These types of illnesses have been found to wreak financial havoc on a large number of individuals. A Harvard study in 2008 found that in that year, about 60 percent of bankruptcies were primarily caused by unpaid medical bills. The amount of lump sum received depends on the type of policy, but it can be up to 1 million dollars.

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