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Critical Illness vs. Cancer Policies: What's Best for You?

The former's more flexible, but you might not have to worry about maxing out on cancer coverage.

A recent study by the American Cancer Society shows women diagnosed with breast cancer have a better chance for survival than they have had in decades -- although African American women have benefited less.

That got me thinking about how my family and I would manage if we ever had to face a diagnosis of cancer -- or a heart attack or stroke for that matter. While the declining mortality rate for breast cancer is great news, the increased screenings and improved treatments that made it possible are expensive.

If my husband or I were ever to become ill, I wouldn't want to have to worry about having to tap into our retirement savings or our children's college fund to handle expenses my regular health insurance doesn't cover.

Supplemental Care

There are two types of policies that can plug the gap: those that cover a range of critical illnesses, including cancer, and those only covers a cancer diagnosis. I decided to check them both out to see which is better. My conclusion: a critical illness policy is a more flexible and easier to understand product than a cancer-only policy, but both are worth considering.

Both cancer and critical illness policies are meant to supplement your comprehensive health care policy and are usually sold through an arrangement with your employer. They are intended to cover medical costs above and beyond what your major medical policy will cover, such as experimental treatments or the policy deductibles and co-pays.

They may also cover costs you may incur for transportation and lodging to a preferred treatment center or for assistance at home for you and your family.

Larry Lounds, the CEO of Security First Benefits Corp., a consulting firm in Flint, Mich., says these supplemental policies are crucial if you want to seek treatment outside the network of preferred providers associated with your health insurance plan.

The specifics of both types of policies can vary, but here are some of the basics:

Cancer insurance policies typically pay out an initial flat dollar amount when you are first diagnosed that can range from $1,000 to $50,000. Subsequent payments are based on a schedule of benefits that usually include fixed-dollar, capped payments for stays in the hospital, testing and drugs, surgeon services, private nursing, chemotherapy and radiation treatments.

These policies usually also cover lodging and transportation for both you and a family member as well as preventative benefits such as mammograms and cancer screenings.

I found several insurers that sell the product, including


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AIG American General

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and Colonial Supplement Insurance, a unit of

Unum Group

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Payments are made directly to you, not the provider, so you can use the money in any way you choose. The big downfall is you will need to submit receipts to get reimbursed and you may incur expenses that are not on the schedule. Of course, the devil is in the policy details.

The National Association of Insurance Commissioners'

Guide to Cancer Insurance points out that a cancer policy that pays for hospital stays after 90 days isn't much use if the average stay for a cancer patient is 13 days. Also keep in mind that a cancer policy will


cover cancer-related illnesses such as infection, diabetes or pneumonia.

The thought of tracking receipts and reading insurance policies makes me a bit queasy, which is why I recommend you check out critical illness policies instead. These policies pay a lump sum benefit between $10,000 to $500,000 if you are diagnosed with cancer, heart attack, stroke or other covered illness. This payment can be used any way you see fit. There are no payments associated with treatment.

A critical illness product completely empowers the consumer to make the best decision, based on his or her situation, on how to target the funds," says Dan Pisetsky, founder of the National Association for Critical Illness Insurance.

The insurers I mentioned above also offer these policies, as do


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, Equitable Life, ING and

Protective Life


. You can read more about these policies


So why would anyone choose a cancer policy? Depending on the policy, there may be no maximum policy payout limitation, although there are often daily or monthly limits. So if treatment extends over a long period of time, there would be continued monies coming to you to help offset the costs. Also, it is often possible to keep a policy if you leave your job. By comparison, critical illness policies have limited portability.

Of course, price is always a factor in any decision. The two types of policies are difficult to compare side by side, but cancer policies will typically cost less than a critical illness policy. Larry Lounds says a typical cancer policy with a $5,000 initial payout plus the additional indemnity payments runs $450 per year, while a $50,000 critical illness policy is $960 a year.

Your employer works with the insurer to choose what supplemental coverage will be made available to select from, so you may not have much choice in the matter. Cancer policies have been around a lot longer, so employers are more familiar with them.

If you have a family history of cancer like me and want the extra financial protection, check the policies out the next time your employer arranges for an on-site review. Make sure to check if your current health policy provides you adequate coverage before any purchase.

Please send me an email

if you want to share your experience with either of these types of policies. I would love to hear from you.

Donna O'Rourke joined Weiss Ratings, now Ratings, Inc., in 1999, and is the senior analyst responsible for assigning financial safety ratings to health insurers and supporting other health care-related consumer products including Medicare supplement insurance, long-term care insurance and elder care information. She conducts industry analysis in these areas. She has more than 10 years experience in credit risk management and analyses. Previously she served as an assistant vice president at the Union Bank of Switzerland, where she analyzed hedge funds, insurance companies and structured products in support of the derivatives and foreign exchange businesses. She holds a bachelor of science in management from Binghamton University and a master's of science in health systems administration from the Rochester Institute of Technology.

While O'Rourke cannot provide investment advice or recommendations, she appreciates your feedback;

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