Here’s how to get money to help pay for you and your family’s needs if you are ever diagnosed with a critical illness.

It can be difficult to think about what might happen if you die, especially if you have a family you provide for. One way to ensure that your family may have some help is to buy life insurance, which will pay out a set amount of money.

But that’s not the only way. While you’re alive, you can also purchase a type of supplemental insurance that pays out an additional cash benefit if you get diagnosed with a qualified critical illness, such as cancer or a heart attack. (Supplemental insurance is a type of insurance that you pay for in addition to your traditional health insurance plan.) And it can be added as a change (or rider) to your life insurance plan.

Term life insurance with a critical illness rider allows you to access a portion of your death benefit directly if you become seriously ill, so that you have access to cash to pay for current expenses.

Let’s look at how it works and why purchasing this type of policy could benefit you and your family in a time of need.

Critical illness insurance pays a lump sum cash benefit directly to the policyholder in the event of a qualifying serious illness. Learn more now.

How does term life insurance work?

Life insurance pays your beneficiary a fixed death benefit, or a certain predetermined amount of money if you die. (Your beneficiary is a person or entity that would get the money.) Term life insurance is life insurance that has a specified end date: the policy’s term. You’ll pay a monthly premium or bill for it.

Term life insurance may be sold in certain time increments, such as 10 or 20 years. Let’s say you earn most of your household’s income and have young children, you might buy a 20-year policy. You can also reup your policy for additional years with new premium amounts until you’re 75.

If you were to die during the term of the policy, your beneficiary — let’s say your spouse — would receive the death benefit, typically as a lump sum of cash.

What happens after your insurance policy’s term ends?

Term life insurance plans can simply expire at the end of the term. Some policies have provisions that allow you to voluntarily extend coverage by renewing the policy.

If you make the switch, your monthly bill will go up. Unlike term life insurance, whole life insurance, which you might also see called permanent insurance, stays in place as long as you continue paying your monthly bill or until the policy owner dies. Whole life insurance also can build up cash value over time. (That’s a type of life insurance that covers you for your entire life, not just a set term.)

What are the cost advantages of term life insurance?

Price is a consideration when shopping for life insurance. One of the benefits of term life insurance is that it tends to have lower premiums than other types of life insurance, such as whole life.

When quoting you a price for the policy, the insurance company issuing it will take into account factors such as your age and health. The older you are, for instance, the higher the premium may be.

Some term life insurance plans may require you to have a medical exam, and the results can affect the premium price positively or negatively. This is called medical underwriting.

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What is a critical illness rider?

A rider can be used to customize an insurance policy to better fit your needs. That could include adding benefits that the base policy wouldn’t otherwise offer.

When a critical illness rider is added to a term life policy, it expands coverage to include paying the policyholder a lump sum of money while they are still alive if they happen to be diagnosed with a qualified critical illness. Examples of qualified critical illnesses include:

• Heart attack
• Life-threatening cancer
• Loss of hearing
• Loss of speech
• Loss of vision
• Major organ transplant
• Renal (kidney) failure
• Stroke

Typically, the payout is not subject to income tax.

The benefit amount of the critical illness rider will be subtracted from your term life insurance policy death benefit when you die. Essentially, you get an advance on the death benefit that you can use to pay for current expenses while you’re still alive.

But it’s important to understand that your beneficiaries will receive a lower amount upon your death if you use the payout from the critical illness rider.

How do I have to spend the money from the critical illness rider?

You can decide how to spend the money. You can use it to pay for medical or nonmedical expenses.

You may choose to use the money to pay for medical expenses that your health insurance company doesn’t cover. These could include:

• Home care
• Out-of-pocket costs, such as copayments (a set amount you pay for a medical service, such as $25 for an office visit) or coinsurance (a percentage of the cost of a medical service)

You could also use the money to pay for other personal expenses, such as:

• Childcare
• Child’s education
• Groceries
• Rent
• Utilities

Is a term life policy with a critical illness rider right for me?

It really depends on your personal needs and budget. If you have a family and want to make sure they have a safety net if you die unexpectedly, a term life insurance plan could be right for you. And if you are at risk of, say, heart disease or have life-threatening cancer in your family, it may be a good idea to add a critical illness rider.

If you’re unsure about critical illness insurance, you can learn more online, or call a licensed insurance agent at 1-844-211-7730 for more information. 

For informational purposes only. This information is compiled by UnitedHealthcare 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. Term Life Insurance with a Critical Illness rider is a limited benefit, not a medical or comprehensive health insurance.

Source:

Nerd Wallet. “Life Insurance Riders: What You Need to Know.” September 6, 2024. https://www.nerdwallet.com/article/insurance/life-insurance-riders

Compliance code:
51785-X-1224