Critical illness insurance was developed in 1996, as people realized that surviving a heart attack or stroke could leave a patient with insurmountable medical bills.

Critical illness insurance provides coverage if you experience one or more of the following medical emergencies:

• Heart attack

• Stroke

• Organ transplants

• Cancer

• Coronary bypass

Because these illnesses require extensive medical care and treatment, their costs can outstrip a family’s medical insurance policy quickly. If you don’t have an emergency fund or health savings account (HSA), you’ll have an even harder time paying those bills out of pocket. 

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Many people are now choosing high deductible health plans, which can be something of a double-edged sword: Consumers benefit from relatively affordable monthly premiums, but could find themselves in a real pinch if a serious illness were to strike.

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Critical illness insurance can pay for costs not covered by traditional insurance. The money can also be used for non-medical costs related to the illness, including transportation, child care, etc. Typically, the insured will receive a lump sum to cover those costs. Coverage limits vary – you could be eligible for a few thousand dollars all the way up to $100,000, depending on your policy. Policy pricing is impacted by a number of factors, including the amount and extent of coverage, the sex, age and health of the insured, and family medical history.

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There are exceptions to critical illness insurance coverage. Some types of cancer may not be covered, while chronic illnesses are also frequently exempted. You may not be able to receive a payout if a disease comes back or if you suffer a second stroke or heart attack. Some coverage might end once the insured reaches a certain age. So, like any form of insurance, make sure to read the policy carefully. The last thing you want to worry about is your emergency plan.