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Supplemental Health Insurance Policies

Instructor: Deborah Schell

Deborah teaches college Accounting and has a master's degree in Educational Technology.

We can purchase insurance to protect us from financial hardship in the event of accident, critical illness, or cancer. In this lesson, you will learn about supplemental health insurance.

What Is Supplemental Health Insurance?

Let's meet Ms. Well, who works at a local hardware store. She has government-provided health insurance but she recently spoke with a friend who suggested she explore supplemental health insurance. She would like to learn more about supplemental health insurance, as she doesn't know much about it. Let's see if we can help Ms. Well with this problem.

Supplemental health insurance augments existing government-provided coverage and you can purchase it from a private insurance company or from your employer if they offer it. Government-provided coverage insures you for basic things, but it doesn't normally pay 100% of the costs that you incur and it doesn't cover your income if you need to take a leave from your job if you develop cancer.

When you purchase supplemental health insurance, you pay into a pool where your premium or the cost of the policy is lumped in with everyone else who contributes. This allows the insurance company that provides the coverage to spread the risk among all members of the plan. The spreading of risk usually means that policyholders pay a lower premium than someone who obtains coverage on his/her own.

There are many types of supplemental health insurance including:

  • Critical illness
  • Employer-sponsored
  • Cancer
  • Short-term medical
  • Accident

Let's examine each of these types of health insurance in more detail.

Critical Illness

A critical illness policy provides a lump-sum payment if the insured develops a serious medical issue such as cancer, heart attack, or stroke and he/she survives the survival period--the minimum amount of time that a person must live after the diagnosis. Critical illness policies issued by insurance companies contain a list of the illnesses that it will cover, as well as the exclusions.

If you have a critical illness, you may not be able to work for a period of time but your expenses continue. You could use the money from a critical illness policy for mortgage or credit card payments, finding medical care, paying for child care, or renovating your home or vehicle to accommodate your illness.

Employer-Sponsored

An employee can purchase employer-sponsored health insurance to cover the cost of prescriptions and dental visits. This type of coverage is helpful, as government-sponsored plans do not cover these expenses. Many employer-sponsored plans have a deductible, or the amount that the policyholder must pay before the plan will reimburse them.

For example, if Ms. Well and her family visit the dentist, she may have to pay the first $25 of the cost of the visit and her plan will pay the balance. Ms. Well's plan could have an annual deductible instead, meaning that she must accumulate expenses over a certain dollar amount, such as $1,000, before her plan will reimburse her expenses.

Cancer

Some supplemental health insurance plans cover specific cancers. A supplemental cancer health insurance policy is similar to a critical illness policy, but unlike a critical illness policy, it covers only cancer diagnoses. It provides the insured with a lump-sum payment after a cancer diagnosis and he/she could use the money to pay household expenses, seek another medical opinion or anything that he/she wishes.

Short-Term Medical

A short-term medical supplementary health insurance policy provides coverage when an individual is between jobs or is just out of college and doesn't have coverage yet, when an individual turns 26 and is no longer covered by his/her parent's plan, or in a situation where an individual needs temporary health insurance coverage, such as after a divorce. Short-term medical coverage could help the insured pay for prescriptions, dental costs, or massage therapy, depending on the policy.

For example, Ms. Well was out of work for a few months after her previous employer closed and did not want to be without health insurance for her and her family. She applied for short-term medical insurance that provided benefits until she found her current job at the local hardware store.

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