Erosion in Savings Helped Create Larger Numbers of UNDERinsured; Critical Illness Insurance Expected to Grow as People Seek to Fill the Gaps

While the growth in the numbers of uninsured Americans continues to garner the headlines (and the attention of political pundits), the growth in numbers of underinsured has been very similar but unheralded.

Consider the case of the “typical” family with an individual deductible of $2600 and a family deductible of $4800 or more. How is a family that is struggling to keep up with jumps in costs for food and fuel going to cover that cost if serious illness hits a member of the family?
Those high deductible plans can be devastating to a family if a wage earner is hit with a catastrophic injury or illness. The general rule of thumb is that if your deductible is more than 5% of your annual income -- you are underinsured! And this is a conservative definition.

This means that the need for critical illness insurance policies is probably higher now than ever before. A good critical illness policy has a lump sum or cap payment of $100K or more, either on diagnosis or paid out as the bills come in. If they are good, they will even pay a moderate amount on experimental drugs. Conventional insurance will pay zero on experimental drugs -- but the critical illness insurance is a different class of product, not bound by the usual restrictions found in a qualified health insurance plan.

Critical illness policies vary on which diseases are covered -- less expensive policies cover only cancer; their underwriting guidelines are usually less demanding, too. Other policies may cover a dozen diagnoses like heart attack, stroke, kidney failure, and the like.

Another difference with critical illness policies is that the payment is normally sent directly to the insured, and the insured can spend it either on the medical bills or on anything from food and utilities on up to the mortgage.

Forty percent of Americans do not have three months’ worth of cash on hand to cover basic bills if they are out of work. (from a 2006 bankrate.com survey)

Medical bills in the first few months after a heart attack can reach $25,000 -- some of that is paid by major medical insurance but the patient has to shoulder the rest of the bill.

If you are between the ages of 35 and 50, and have a high deductible plan, you are the type of person who is most vulnerable to a large financial hit from a major medical event. And you are also most likely to HAVE a major medical event like a stroke or heart attack.

Even those with dual incomes totaling over $50,000 a year -- or even $75,000 a year -- report that they have difficulty paying for health insurance and their portion of the healthcare bill. They often do not have any (or sufficient) disability coverage to make up for lost income while recuperating. How many are aware that disability insurance, if you qualify, only pays an average of 60 percent of your normal income?

A soft economy also means that your employer may not keep your job open if you file for disability -- or even lay you off outright.