About 90% of middle-income Americans don't feel prepared to handle the financial cost of a critical illness diagnosis, according to a survey released Tuesday.
The study, Middle-Income America's Perspectives on Critical Illness and Financial Security, from the Washington National Institute for Wellness Solutions (IWS), found just 11% of respondents have enough money saved to cover family emergencies and health costs from a critical illness.
Most said they would turn to savings to cover costs their insurance wouldn't, but 75% have less than $20,000 in savings. A quarter have no savings at all.
The survey found those who are confident they have saved enough may be underestimating how much they'll need. "Middle-income Americans frequently omit associated costs—like post-treatment wellness visits, nonmedical bills, professional caregiving, lost income from missed work, travel to and from treatment and other expenses—when they consider the total costs of critical illnesses," according to the report.
Americans understand it's expensive to be sick, though. Nearly half of respondents said they would probably never recover financially from an Alzheimer's or dementia diagnosis, and 38% said the same of a cancer diagnosis.
"What we try to do [as an insurance company], is provide products that meet a wide range of needs for individuals," Barbara Stewart, president of Washington National, told AdvisorOne on Wednesday. "At the end of the day, it's the psychographics related to people having their risk characteristics and what they feel is adequate to cover, and balancing that with their savings and support mechanisms, like family, friends, etc."
Still, 58% of respondents haven't spoken with advisors, or even loved ones, about potential caregiving options, and 60% haven't discussed financial planning, according to the report. In fact, when it comes to getting information about how to pay for a serious illness, financial institutions and advisors rate pretty low. Nearly 30% of respondents said their insurance company would be their go-to source for information, followed by the hospital (13%), health care provider (12%) and their family and friends (11%). Just 9% of respondents said a financial advisor or insurance agent would be their primary source of financial information.
"First and foremost, people are going to go back to their medical plan insurance company to figure out what coverage they have, and consequently what financial protection they have, as well as learn about the gaps that exist," Stewart said.
Stewart stressed that it was important for advisors to "raise the question as it relates to middle-income consumers in terms of the whole area of health risk and the opportunity incidence of a critical illness and the financial gaps that'll be caused by that." Advisors should make sure "their conversations are not solely focused on wealth accumulation or insurance, but bring in that full financial picture that also brings in the health consideration and the fact that you need to be planning not just for [critical illness], but what happens to their retirement nest egg if it occurs at some point later in time and they still don't have adequate financial coverage."
Just 5% of respondents said they had purchased critical illness insurance, and most were not even aware of it, the report found. Of the 23% who have heard of such products, two-thirds haven't purchased them because they think they're too expensive. Almost 40% don't think they'll provide enough to cover their expenses.
"The issue is there's a misconception as it relates to options for coverage. One of those misconceptions is clearly that it's too expensive," Stewart (left) said. "What we try to do is position a wide range of options for folks for what they feel is the appropriate level [of coverage] and so that there are affordable coverage options at all of those considerations."
