What Is Cancer Insurance & How Does It Work?

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Worried you won't have enough money if you get cancer? Cancer insurance pays you a lump sum when you're diagnosed with cancer. Image © Eric Audras/Getty Images

Cancer insurance is a type of supplemental health insurance that pays a lump-sum cash benefit if you’re diagnosed with cancer. Cancer insurance isn’t a substitute for comprehensive major-medical health insurance like Obamacare, Medicare, or the group health insurance you get through your employer. Instead, it’s meant as an add-on to augment your regular health insurance.

How Does Cancer Insurance Work?

Unlike comprehensive health insurance, cancer insurance doesn’t pay for your cancer treatment.

Instead, when you’re diagnosed with cancer, it gives you a set amount of cash. It’s a type of fixed indemnity policy. Fixed means the amount of cash the policy pays is set by the policy itself; it won’t vary by how much your treatment costs or how much your doctor bills are.

If you’re diagnosed with a type of cancer covered by the cancer insurance policy, you can use the cash benefit however you’d like. Many people use the benefit to compensate for lost wages if the cancer or its treatment has made it difficult for them to work. Others use it to pay the cost-sharing expenses associated with their health insurance such as their deductible, coinsurance, or copays. However, if you want to use the money to pay off credit card debt, buy a car, or take a family vacation, you can do that too. The choice is yours.

If you’re not diagnosed with cancer while you’re covered by a cancer insurance policy, you won’t get any money back from your cancer insurer.

Even if you’re diagnosed with another devastating or expensive disease, you won’t get a pay-out from your cancer insurance. If you’re interested in fixed indemnity insurance that pays a cash benefit like cancer insurance, but pays-out for a broader range of diseases, consider a critical illness policy.

How To Evaluate a Cancer Insurance Policy

Although you should read the brochures and advertising literature associated with the cancer insurance policy you’re considering, it’s almost essential that you read the actual policy or policy terms if you really want to understand what you’re buying. Here are some things to ask:

What types of cancer are covered? Just as important, what types are excluded? Are there any cancer diagnoses that would result in only a partial pay-out? For example, some cancer insurance won’t pay at all or will decrease the pay-out amount if you’re diagnosed with a non-melanoma type of skin cancer.

Likewise, the policy may only pay a percentage of the full benefit if you’re diagnosed with a cancer in situ. Let’s say you buy a $30,000 cancer insurance policy that decreases the benefit by 50% for cancer in situ. Eight months later, your routine mammogram picks up an abnormality. After more testing and a biopsy, you’re diagnosed with ductal carcinoma in situ and undergo a lumpectomy and radiation.

The in situ nature of your disease means you’ll be paid $15,000 even though you bought a $30,000 cancer insurance policy.

Is there a waiting period? Many cancer insurance policies have a waiting period between the effective date of the policy and when your coverage kicks in. If your cancer diagnosis happens during the waiting period, you won’t be paid. With some policies, if your cancer symptoms started before your coverage kicked in, you won’t be paid even if your diagnosis was made after your coverage kicked in.

Is the policy guaranteed issue? A guaranteed issue policy means the insurance company must offer a policy to anyone who applies; it can’t refuse to insure people who are at high risk. Asking the sales agent or benefits representative, “Can I be turned down for this insurance?” will tell you whether or not the policy is guaranteed issue.

If the policy isn’t guaranteed issue, the insurer will want a health and family history to help it determine your statistical risk for developing cancer. Answer these questions honestly. Be aware that the insurer may have access to information on you from other sources such as the Medical Information Bureau. Lying on your application or leaving out relevant information is fraud and could result in your policy being voided.

What must you do to get paid? The insurance company that sells you a cancer insurance policy won’t just take your word that you’ve been diagnosed with cancer. It will want proof. Ask what, specifically, your insurer will require in order to pay a claim. Expect that it will want a copy of the pathology results from your biopsy or tissue sample. It may want copies of medical records pertaining to your new cancer diagnosis or a letter from your primary care physician or your oncologist confirming your diagnosis. Ask what other information will be required before it will pay a claim.

Ask how long you can expect to wait before your claim is paid and what the average time period is between filing of the initial claim and the claim being paid.

Is This a Good Insurance Company? Check with the Better Business Bureau to see if this insurer has complaints and, if so, how many were resolved successfully. Check with your state’s Department of Insurance to make sure this insurer is licensed to sell insurance in your state. Some states’ Department of Insurance will also give information about an insurer’s complaint ratio.

Things to Know

Since cancer insurance isn’t comprehensive health insurance and doesn’t provide coverage for all of the essential health benefits, it won’t satisfy the Affordable Care Act’s requirement to have health insurance. By itself, cancer insurance won’t help you avoid the tax penalty for being uninsured.

In the United States, cancer insurance isn’t as tightly regulated as comprehensive health insurance. Therefore, you may not have the same consumer protections you’re used to with comprehensive health insurance.

For example, comprehensive health plans sold on Affordable Care Act health insurance exchanges must spend 80-85% of the money they collect as premiums on paying for health care or quality assurance activities. This only leaves 15-20% of the money collected as premiums for overhead, advertising, and profits. Since cancer insurance isn’t held to this same standard, a much larger percentage of your premiums may go towards agent commissions, advertising, and profits.

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