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Dreaded Disease Indemnity Policy: To Buy Or Not To Buy?

Article 4 of 9 in Health Insurance Articles

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With all the recent changes made to health insurance laws, many people are more challenged and confused than ever as to their options regarding health insurance. Add to that the dizzying onslaught of commercials for Lipitor, Advair, and the maladie du jour, and you can easily be hobbled by frustration and anxiety. Don’t go running for a bottle of Prozac just yet; it’s not as bad as it sounds. There are some ways to help you save money and exposure that you may not have looked at before now.

Many employers have begun stripping benefits more than ever, in an effort to reduce their costs, and some are opting out of providing insurance benefits altogether. With the mandate coming that you are most likely going to have to be covered for health insurance somehow, an excellent way to reduce your exposure is with a dreaded disease/indemnity plan (in combination with a high deductible medical insurance plan).

High deductible health insurance plans are really the best way to go, but many people are uncomfortable with the fact that a large bill may be waiting for them in the event of a serious injury or critical condition. The low premium makes them affordable, but as with everything in life, you have to understand your risk and cost and minimize your loss if something bad should occur.

If your family has a history of heart disease, you may consider a policy for heart conditions. If your family has a history of cancer, look at a policy for cancer. If you are self employed and have a lot of active hobbies, you may consider an accident plan. If you are worried about losing income while off your feet, maybe you should get a disability income plan. For pennies on the dollar, these plans will pay money to you or your provider (on your behalf) for expenses not covered by your primary insurance plan. There are also many other types of plans in this category: dental, vision, hospital, Long Term Care, and others.

But, before you go out and stock up on an indemnity plan (or a bunch of them), here are seven key things you will want to look at:

  • The plan may or may not cover all of your expenses. The term “gap” insurance or “supplemental” is used by a lot of people who sell these plans, which is a misnomer. It might pay more; it might pay less; it might pay nothing. Understand your risks and know what you are getting for your money. Some plans pay a lump sum; others pay a daily benefit; and still others pay different amounts for different specific event. Make sure you understand how the plan will work for you so you aren’t distraught later.
  • Read the fine print. For example, some cancer plans only cover certain types of cancer. If you buy a cancer plan for internal cancer and end up with melanoma, it won’t do you much good.
  • Buy what you need. If you’re young, healthy, taking good care of yourself, and have a family history of little to no cancer, save your dollars. Likewise, don’t buy a $10,000 plan if you are only going to need $5,000 of assistance. You’re going to pay that premium every month, regardless if you use it or not.
  • Shop around. You will be surprised at the number of companies who offer these types of plans. Everyone has most likely heard of AFLAC, but most people can’t tell you what it stands for (American Family Life Insurance Company). There are literally dozens if not hundreds of companies out there if you just do a little research. The internet can serve as a springboard or ask your insurance agent.
  • Most commonly, these types of plans pay cash benefits to YOU, the policy holder, regardless of any other insurance coverage you have, so keep that in mind. Quite often, some insured by this type of policy will forget about their hospital bills, and blow the cash on a big screen TV or Greek Isles jaunt. Don’t forget what it’s for -- covering unpaid medical bills or other expenses, not a windfall of free cash.
  • Pre-existing conditions MAY be covered, but there will most likely be a waiting period of six to twelve months for your condition to be considered “covered”. With dreaded disease policies, particularly for those with serious medical conditions, this is the single most challenging issue that you face.
  • Some policies may overlap. If you have cancer and end up in the hospital, you could possible receive benefits from several types of plans, each covering a specific event. A hospital indemnity plan would pay benefits to help cover your stay in the hospital, such as room charges, etc. (usually a daily benefit). A surgery plan might help pay for the procedure (a lump sum or percentage). A cancer plan might pay you simply for being diagnosed with cancer (lump sum or percentage).

    So is a dreaded disease policy right for you? Only you can answer that question, but now that you have a better understanding of how such a policy might work, what the risks and benefits are for you, and what you can expect when shopping for such a plan, you should be able to make an educated decision. If you do decide to purchase such a policy, you should be able to get the best plan for your needs at the best price, and understand what you are getting for your money.


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