What are miscellaneous policies?
There are several types of insurance policies that cover only a limited, specific risk. These may also be referred to as “limited policies.” The most common of these are dread disease policies, hospital indemnity, and accident insurance. Although these policies are far less expensive than comprehensive coverage, they only protect you against very specific risks. While miscellaneous policies tend to be very inexpensive, and the payouts can be substantial, very few claims are ever filed, because the covered illness, accident, or other circumstance rarely happens. In some instances, limited policies may be used to supplement comprehensive health insurance coverage. They should never be used as a substitute.
What is a dread disease policy?
Coverage for specific, named illness
A dread disease policy pays only in the event you actually get the disease named in the policy. Dread disease policies are typically issued for illnesses that do not occur frequently but that involve significant expenses when they do occur (e.g., cancer or Parkinson’s disease).
May duplicate existing coverage
If you already have a major medical policy, it will likely provide coverage for diseases such as cancer or Parkinson’s. Buying a dread disease policy in addition to major medical does not necessarily mean you will double your benefits. Most basic insurance policies contain coordination of benefits clauses, which prevent duplicate payments.
Keep in mind, however, that most miscellaneous or limited policies will not cover you for cancer or other major diseases if you have the disease before you apply for the policy. This may be true even if you are unaware you have the disease.
Policies vary greatly in terms of coverage
Some policies pay only for hospital care. Since many treatments can be performed on an outpatient basis, hospital coverage has limited usefulness. For example, the average hospital stay for a cancer patient is only 13 days. Dread disease policies may also have fixed dollar limits, waiting periods of 30 days or more, and limited benefit periods.
Never a substitute for comprehensive health insurance
A dread disease policy should only be considered after asking yourself the following questions: Is my current coverage adequate? How much would the treatment cost if I did get this disease? How likely am I to contract this disease? If you are not protected against catastrophic medical costs, you should be purchasing major medical coverage, not a dread disease policy.
What is hospital indemnity insurance?
Pays a specified amount for each day you are hospitalized
Hospital indemnity plans generally pay between $50 and $100 per day if you are hospitalized. This benefit is usually paid in addition to existing insurance coverage.
Sometimes used to replace lost income or meet deductibles
Hospital indemnity insurance may also be referred to as “hospital income insurance.” The reason is that benefits from this type of policy are not necessarily intended to cover the expense of hospitalization but rather to provide a flow of income that begins when you are hospitalized and ends when you are released. This money may be used to replace lost income or to meet deductible or co-insurance requirements.
Never a substitute for comprehensive health insurance
A hospital indemnity policy is no substitute for comprehensive medical and disability insurance. Since most comprehensive medical plans pay for hospitalization, you would probably be better off increasing your disability coverage and staying away from hospital indemnity.
What is accident insurance?
May cover various types of accidents
Accident insurance policies take many forms. Some policies pay a specific amount if you lose a leg, an arm, or an eye, for example. Others help pay your deductible if you are injured in an accident. Still others are sold by travel agents to cover losses resulting from travel accidents.
May duplicate existing coverage
If you already have a comprehensive insurance package, this will likely cover any claims resulting from accidents. Buying an accident insurance policy in addition to your existing insurance does not necessarily mean you will double your benefits. Most basic insurance policies contain coordination of benefits clauses, which prevent duplicate payments.
Never a substitute for comprehensive health insurance
If you suffer a major injury as a result of an accident, the biggest risk is that you will be unable to work. Disability income insurance provides much greater protection against this risk than an accident insurance policy does. If you are unable to work because of a serious illness, disability insurance still covers you; accident insurance does not. Accident insurance should never be used as a substitute for comprehensive insurance coverage.
