Big Changes On The Horizon For Critical Illness Insurance.
Critical illness insurance (CII) is a form of life insurance that pays out benefits to an individual if the insured becomes critically ill or injured and cannot work. This type of insurance typically covers a period of six months to two years and usually has multiple plan options with varying premium levels.
The availability of CII has been increasing over the past few decades as more employers have incorporated it into their benefit packages, but there are big changes on the horizon for these types of policies. Policy holders should be aware that CII is not a good option for everyone due to its exclusion clauses as well as limitations on how long you can carry it.
What is Critical Illness?
For purposes of this article, critical illness refers to any illness that renders the insured unable to perform normal work duties. This illness includes an injury resulting from accident, a chronic disease (e.g., cancer), or a terminal disease (e.g., AIDS). Conditions that are considered conditions for which benefits may be paid include amyotrophic lateral sclerosis (ALS), cardiovascular medical problems, cancer, diabetes mellitus, hearing impairment or mental health problems.
The Benefit Period
Critical illness insurance provides benefits if a critical illness occurs during the benefit period. The benefit period begins on the effective date of coverage and ends with the 72nd month following that date, regardless of when the insured becomes critically ill. For example, if an individual buys a CII policy with a three-year benefit period on June 1, 2014, they could receive benefits for any critical illness that occurs during the next two years and six months after June 1, 2014.
There are two ways to calculate the beginning of your critical illness benefit period: (1) you can select a specific starting date; or (2) your coverage could begin on an anniversary of your effective date. If a plan offers a specific starting date, you must select the month in which you started coverage. If your coverage began on June 1, 2014, for example, even if you enrolled in the plan on May 31, 2014, your benefit period would begin on June 1, 2015.
If no specific starting date is chosen and your CII policy has an anniversary benefit period (e.g., June 30 of the third year), then your critical illness benefit period could begin just about any time in the following two years. For example, if someone purchased their CII policy on June 30 of 2013 and became critically ill or injured during December 2014 or January 2015 there is no way to know when their critical illness benefits would begin.
The maximum duration of a CII policy is two years, but the length of the CII benefit period generally cannot be extended. This means that if you developed an illness or injury after your policy's first year anniversary, you may not be able to collect any critical illness benefits for that illness or injury (unless your policy permits subrogation).
Premiums: The Fine Print
Here are some important things to be aware of when buying a CII plan:
Most policies offer multiple options for determining how much you pay each month for your benefit. There are plans with low monthly premiums and high deductibles, as well as plans with lower premiums and higher deductibles.
The deductible amount is the initial amount you must pay before any benefits are paid. This usually varies depending on the type of illness or injury that caused the illness and whether or not you were permanently disabled as a result of it. Generally, a temporary disability is defined as lasting for less than three months and a permanent disability is defined as being in existence for more than three months.
CII plans are often referred to as "cash value" plans , because the benefits received during your crisis period (calculated using the premium paid each month) are often in the form of cash rather than an actual insurance policy. This is true regardless of whether an actual policy is being purchased or not. These plans often offer the opportunity to make additional premium payments to increase your cash values. The maximum that can be credited to a plan in this manner is the amount of the monthly premium paid or $100, whichever is less.
An "Annual Limit" is a cap set on how much benefit you can receive during your critical illness benefit period. In many cases, these limits do not have a dollar limit and are based on the cost of living index (COLI) effective that month plus any amounts already paid by the policyholder in relation to his or her premium amount for that month.
In all but a few types of policies (e.g. level premium policies and variable life policies), you will not receive any benefits for the first three months of your critical illness benefit period. This means that if you become critically ill or injured on June 1, 2015, but don't get treatment until September 1, 2015, you are only eligible for benefits starting with your fourth month of coverage (which is October).
For policies with a specified-duration critical illness benefit period, the health status exclusion will still apply if an individual was previously covered under a CII plan and develops a related condition prior to their discharge date. This means that someone who had previously purchased CII insurance could be denied medications or treatments—even if they were necessary to treat their condition—that they are already aware of that condition. For example, if a man suffers from a heart attack and is subsequently denied critical illness benefits for that attack, he would not be able to file a claim on his CII policy if he developed cancer or diabetes as well, even if he was unaware of the presence of cancer or diabetes when the heart attack occurred.
A "Pre-existing Condition" is an illness that existed prior to the development of a critical illness—or one that resulted from another pre-existing condition and is therefore considered part of that original pre-existing condition. A pre-existing condition is usually excluded from being covered under a CII policy.
The Affordable Care Act (ACA) has given individuals with preexisting conditions the option to purchase coverage that includes these conditions as of January 1, 2014. Before this time, it wasn't possible for someone with a preexisting condition to apply for CII and have it be covered by their plan.
Although rare, it is possible for a person to develop a disease or illness after they have purchased critical illness insurance. If this occurs, any benefits received after the expiration date of the policy would not be recoverable and an individual would have no recourse under their CII policy other than filing a lawsuit against the insurance company or its agents.
Conclusion: A Final Word on the Law
To recap: There is no specific law that allows you to file a lawsuit against an insurance company or its agents for denying critical illness benefits, even if you have already received the benefits.
However, if you (or your lawyer) believe that there has been a violation of one of these laws by an insurance company, it will be absolutely essential that you keep thorough records of all contact with the company as well as all relevant medical information and treatment. This includes documents such as letters, faxes, emails, and phone calls regarding critical illness coverage and denial of benefits.