Critical Illness Insurance vs. Hospital Indemnity vs. Accident vs. Disability

Supplemental health insurance can come in handy when you or a loved one are facing unexpected medical costs due to an illness, disability, or medical emergency.

Having a primary health insurance plan is beneficial for many people, but it has its limits. Some may find that their current plans don’t provide adequate financial protection when they need it most.

While more Americans are insured than they were in previous years, a 2022 Commonwealth Fund survey found that more than two in five working-age adults are underinsured and struggling to afford care.

To help be better prepared, you may be considering purchasing a supplemental insurance plan like critical illness insurance, hospital indemnity insurance, accident insurance, or disability insurance.

Learn more about these types of insurance plans and how they can bring you added financial support.

What is critical illness insurance?

Critical illness insurance often provides a lump sum of money to help cover the costs associated with a serious illness — like cancer, stroke, or heart disease. The money can be used to directly or indirectly pay for expenses related to the illness. This can include some of the following costs:

• Co-pays
• Deductibles
• Experimental treatments
• Childcare and household assistance
• Out-of-network treatments 
• Lodging
• Living expenses (e.g., car payments, groceries, mortgage payments)
  

To get critical illness insurance, you can buy a policy on your own or through your employer if they offer it.¹

What are the benefits of critical illness insurance?

Critical illness insurance may be especially appealing to those with a history of certain diseases or for older individuals who might be more prone to conditions like heart disease and strokes.

There are many reasons why critical illness insurance may be worth it for you or your family. Consider some of the following benefits of critical illness insurance:¹

• You can use the money for a variety of needs: You’ll get a lump-sum payment that you can use for however you see fit.
• You may have relatively affordable premiums: Critical illness insurance premiums are typically low. Plus, some employer-sponsored premiums differ from other plans by offering a pre-tax benefit, which reduces your overall taxable income.
• You can get coverage for a range of illnesses: What’s covered will vary by policy, but in general, many serious illnesses are covered by critical illness insurance. Cancer, heart attack, kidney failure, multiple sclerosis, stroke, Parkinson’s disease, and major organ transplants are just some of the illnesses that are often covered.

What is hospital indemnity insurance?

Hospital indemnity insurance is used to pay for expenses associated with a hospital stay due to illness or serious injury. If you’re hospitalized, hospital indemnity insurance provides cash benefits, which are paid out in either one lump sum, daily/weekly payments, or a fixed amount.

Some plans may enforce a waiting period before you can receive the money. These payments go directly to you and can be put toward out-of-pocket expenses that aren’t covered by your health insurance.²

Coverage will vary by plan, but hospital indemnity insurance typically covers some of the following:

• Hospital admissions
• Overnight stays
• Intensive care
• Outpatient surgery
• Ambulance services
• Emergency room visits
• Additional expenses (e.g., transportation, childcare, food delivery)

Hospital indemnity insurance may be available through your employer, or you can purchase a plan with an insurance company.

What are the benefits of hospital indemnity insurance?

Hospital indemnity insurance can be valuable for anyone, but people with chronic health conditions or a family history of serious illness may find this coverage to be especially worthwhile. It can also be an added help to offset out-of-pocket costs if you're pregnant, plan to get pregnant, or if you have an upcoming procedure that will require hospitalization.

Consider some of the following benefits of hospital indemnity insurance:

• You can take the benefits with you: In many cases, your hospital indemnity coverage will remain the same even if you move or leave your current employer.
• You can use the benefits for a wide variety of needs: Payments can be used for just about anything, including deductibles, coinsurance, medications, etc.
• You’ll typically have coverage for your loved ones: Many policies allow you to add family members to your plan.

What is accident insurance?

Accident insurance offers a payout for injuries caused by an accident. Accident insurance usually provides a one-time, lump-sum payment to be used at your discretion. Depending on your policy, accident insurance will cover a wide array of accidents, including fractures, burns, concussions, or broken bones. Some policies will also cover accidental death and pay your beneficiaries if you die from an accident. You can use accident insurance to pay for some of the following expenses:

• Deductible/co-insurance
• Hospitalization
• Emergency care
• Therapy services
• Medical exams
• Transportation and lodging

Many employers offer accident insurance as part of their benefits package, but you can also purchase the plan independently as a standalone policy in addition to your current medical coverage.³

What are the benefits of accident insurance?

An unforeseen accident can happen to anyone, so having accident insurance can be beneficial. Accident insurance may be especially appealing to professional athletes or adults and children who play sports. This type of insurance can also be a good investment for people in high-risk professions, such as firefighters and police officers.

Consider some of the following benefits of accident insurance:⁴

• You’ll have coverage for more than just injuries: Many plans come with additional coverage for things like accidental death, blindness, paralysis, and limb loss.
• You’re offered immediate coverage: Unlike other insurance plans, accident insurance often doesn’t require a waiting period before you can receive benefits.

What is disability insurance?  

Disability insurance covers a portion of your income if you’re unable to work due to a serious illness or injury.⁵ Loss of income due to an inability to work can be caused by many things, such as severe back pain, diabetes, broken bones, mental health, and pregnancy. Disability policies can be short term or long term, depending on the disability.

Both short and long-term disability policies will have a required waiting period before the benefits kick in. Waiting periods will vary, but you can typically expect short-term policies to take a few weeks and long-term ones to take a couple of months.⁶

Disability insurance may be offered by an employer. Employers who provide group disability insurance will typically offer short term, long term, or both. Disability insurance can also be obtained through the government — like Social Security disability coverage — or purchased individually.⁷

What are the benefits of disability insurance?

Disability insurance is a good way to plan for the unexpected. The added financial support provided through a disability policy may be particularly valuable to you and your family if you're the primary breadwinner in your household.

Consider some of the following benefits of disability insurance:⁸

• You’ll still have income even if you can’t work: If you’re unable to earn a paycheck due to a disability, you can still receive a portion of your salary, which can help maintain your family’s standard of living.
• You can enjoy a tax-free benefit: Disability insurance payouts are tax-free as long as the policy was paid for yourself and not provided by an employer.

Do I need supplemental insurance?

Any of the above supplemental insurance policies can be beneficial — no matter your health, age, or occupation. Anyone who wants an extra layer of financial protection for themselves and their family, or who have high-deductible insurance plans, may want to consider supplemental coverage.