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Supplemental health insurance can come in handy when you or a loved one are facing medical costs due to an illness, disability, or medical emergency.
Although more Americans have insurance now as compared to previous years, a 2022 survey by The Commonwealth Fund revealed that over two in five working-age adults face being underinsured and struggle to afford medical care.1
Whether it’s open enrollment season or you’re in the midst of a life change, you may be considering getting extra coverage in the form of supplemental health insurance. But what are the differences among the various policies?
What is supplemental health insurance?
A health insurance policy doesn’t always cover all medical costs. You likely have deductibles, copays and other out-of-pocket expenses for treatment and medical services. Supplemental health insurance policies can help pay for medical expenses that health insurance may not cover.Different types of supplemental health insurance can provide payments to help with different expenses — whether it’s for specific services or as a lump sum of cash to use as you please. And your insurance provider pays you directly, instead of paying your healthcare provider.
A quick breakdown of supplemental insurance types
Here are four common types of supplemental health insurance:
- Critical illness insurance provides a payment following the diagnosis of a serious illness or disease.
- Hospital indemnity insurance provides payment following admission of your hospital stay.
- Accident insurance provides coverage if you’re injured or pass away due to an accident.
- Disability insurance supplements a portion of your income if you’re unable to work because of a disability.
Expenses supplemental health insurance may cover
Coverage will vary by plan, but supplemental health insurance will usually provide a lump-sum payment to be used however the recipient sees fit, including:
- Copays
- Deductibles
- Therapy services
- Experimental treatments
- Childcare and household assistance
- Out-of-network treatments
- Lodging
- Living expenses (e.g., car payments, meal delivery, groceries, mortgage payments)
- Hospital admission and emergency care
- Ambulance services
- Overnight stays
- Out-patient surgery
Critical illness insurance basics
Critical illness insurance often provides a lump sum of money you can use however you see fit, including to help cover the costs associated with a serious illness — like cancer, stroke or heart disease.To get critical illness insurance, you can buy a policy on your own or through your employer if they offer it.
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 individuals who might be more prone to certain conditions like heart disease and strokes.
There are many reasons why critical illness insurance may be a good investment for you or your family. Consider some of the following:
- 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 fairly 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, critical illness insurance covers many serious illnesses. 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.
Hospital indemnity insurance basics
You can use hospital indemnity insurance to pay for expenses associated with a hospital stay — not only for an illness or injury but also for planned procedures. If you’re hospitalized, hospital indemnity insurance provides cash benefits, typically in a lump sum or through daily/weekly payments.
Some plans may enforce a waiting period before you can receive the money. These payments go directly to you to use how you want.
Hospital indemnity insurance may be available through your employer, or you can purchase an individual 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.
With 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: You can use payments 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.
Accident insurance basics
Accident insurance offers a payout for injuries caused by an accident. Accident insurance usually provides a one-time, lump-sum payment for you to use 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 pass away from an accident.
Many employers offer accident insurance as part of their benefits package, but you can also purchase a plan independently as a standalone policy in addition to your current medical coverage.
What are the benefits of accident insurance?
An accident can happen to anyone, but accident insurance may be worth it to those who play sports or are in high-risk professions.
With accident insurance:
- You’ll have coverage for more than just injuries: Many plans come with additional coverage for things like accidental death, blindness, paralysis, and loss of a limb.
Disability insurance basics
Disability insurance covers a portion of your income if you’re unable to work due to a serious illness or injury.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 typically 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.
Disability insurance may be offered by an employer. Employers who provide group disability insurance will typically offer short-term, long-term, or both.You can also acquire disability insurance through the government, with programs like Social Security, or purchase it individually.
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 beneficial to you and your family if you're the primary breadwinner in your household.
If you have disability insurance:
- 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 could enjoy a tax-free benefit:Disability insurance payouts are tax-free as long as you paid for the policy yourself and it wasn’t provided by an employer.
Do I need supplemental insurance?
There’s no one-size-fits-all option. Rather, it’s what’s right for you. 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 may want to consider supplemental coverage.
How do I get supplemental insurance?
Your employer may offer supplemental insurance for a low monthly premium. If so, you can sign up when you first start your job, during open enrollment (typically October and November) or during a qualifying life event. Or you can purchase an individual plan on your own.
