Facing a serious illness can sometimes mean that you're unable to work during your treatment or recovery. What happens if your paid leave or personal financial resources run out, and you still have household bills and other expenses to pay?

It's important to plan for how you'll handle your finances in this type of situation before it happens. One way to safeguard yourself is to purchase critical illness insurance.

What Is Critical Illness Insurance?

Critical illness insurance pays a direct cash benefit when you have a qualifying medical condition. Your insurer typically makes the payment in one lump sum. You can use the money to pay out-of-pocket expenses that your primary health insurance doesn't cover, which could include deductibles, co-payments, ordinary living expenses and special needs related to your medical care.

As with other forms of supplemental health insurance, there are no restrictions on how you use your critical care insurance benefit payment. Here are some examples of how you could apply it:

• Health insurance deductibles and co-payments
• Transportation to and from medical appointments
• Lodging for long-distance care
• Special diets
• Rent or mortgage payments
• Groceries
• Utilities
• Replacement of lost income

Which Conditions Count as Critical?

A key part of understanding critical illness insurance is knowing what constitutes a critical illness. Each insurer lists which illnesses it covers under its critical illness policies, and different options might cover different conditions. A critical illness plan might (or might not) cover the following conditions:

• Cancer
• Heart attack
• Stroke
• End-stage kidney failure
• Heart disease
• Alzheimer's disease
• Permanent blindness
• Permanent deafness
• Permanent paralysis

Depending on the policy, critical illness insurance might also cover major organ transplants.

What to Consider When Purchasing Critical Illness Insurance

You can purchase an individual critical illness plan from your insurance company. You might also be able to purchase coverage at work if your employer offers it as a voluntary benefit with group premium rates. Most of the 1.6 million people who bought critical illness insurance in 2019 got it from their workplace, according to the American Association for Critical Illness Insurance.

The association says that the best time to buy critical illness insurance is when you're between 40 and 55. (If you're older than 55, you're at an increased risk of developing a serious illness, and that makes the premium rates less affordable.) It also recommends that you consider obtaining enough coverage to cover at least six to 18 months of your rental or mortgage payments.

Before you purchase a policy, find out what medical events the insurance company requires before making payments, whether there's an age limit or whether an age-based payout reduction applies, and whether the policy offers guaranteed payment. The insurance company might only guarantee that it will pay out a certain percentage of the premiums it collects.

Supplement Your Primary Health Insurance

As with other supplemental plans, critical illness insurance is designed to complement your primary health insurance — whether you have private insurance or Medicare — by stepping in where that coverage stops. It does not duplicate the coverage of any other supplemental policies you might have, such as Medicare Supplement insurance (Medigap) or disability insurance. Instead, it provides funds that can help you pay for some of the nonmedical expenses those policies don't cover.

With this basic guide to critical illness insurance, you can begin to evaluate whether this kind of protection is a good solution for you. You might be able to use the coverage to shield yourself against the financial stress of a health crisis so you can focus on getting well.