Is It Really Possible to Avoid Medical Bankruptcy?

Individual and Family

Is It Really Possible to Avoid Medical Bankruptcy?

Published on July 31, 2014


Why do families with health insurance go bankrupt when a family member gets sick?

The Kaiser Family Foundation found that 32 percent of families had trouble paying medical bills. It was also reported that 1.7 million Americans lived in households that declared bankruptcy due to their inability to pay their medical bills. 1,2

So what’s the problem? Why do families with health insurance go bankrupt when they get sick?

  • The inability to work: When a self-employed person or a small business owner can’t work because he or she is sick, very often the family’s income stops coming in. Having an influx of cash upon diagnosis of an illness would not only offer the family assistance with day-to-day bills, but it would also be a built in safeguard to help float the business until the owner could return to work.
  • High-deductibles: The average family has about $6,000 in savings3 but – even under the Affordable Care Act – families have the option to buy health insurance plans with out-of-pocket maximums as high as $12,700.

What is the insurance industry solution?

Most people have heard of accident insurance (thanks, AFLAC), but critical-illness insurance is an emerging product.

How does critical illness insurance work?

  • Plans pay a lump-sum benefit when diagnosed or treated for one of the covered critical illness events.
  • Plans offer payouts ranging from as little as $10,000 up to $100,000 or more in some instances.
  • The money can be used for anything. For example, a person can use the money to pay the mortgage, pay employees at a business, or stay current on car payments or credit card bills.

The agent perspective: A good agent tries to find best value for the client’s money. Using tools like a critical illness policy combined with an accident plan could actually be an effective way to pick up the slack when purchasing an inexpensive medical plan.

Here are some questions you should ask when reviewing your options:

  • What’s the most expensive health insurance plan you can buy?
  • What’s the least expensive health insurance plan you can buy?
  • What’s the difference in monthly price?
  • What’s the difference in deductibles?

If the monthly price difference for 12 months is greater than the difference in deductibles, here are some things to consider:

  • If you bought the cheapest plan, would you still save money if you added an accident plan and/or critical illness insurance?
  • Regardless of whether or not you save money, would these additional benefits improve your financial situation if you had a major illness (such as heart disease) or injury that consumed your whole deductible and left you unable to work?
  • What’s in the fine print? Where things always get tricky with insurance is when it comes to the details. You need to read all of the plan benefits and find which plan, or combinations of plans fit your needs.

Finding the right level of protection as a sole proprietor or for your family can be difficult. Sometimes thinking outside of the box and using a different tool like critical illness insurance can help you both stay within your budget and give you the level of coverage you need.

To learn more about your different insurance options, contact one of our many helpful licensed agents at

According to 2013 Kaiser Family Foundation Research (Source)
2 According to 2013 NerdWallet Research (Source)
According to a 2012 report by Pitney Bowes (Source)

We’ll let you know when we publish anything new.