By Namrata Singh, CFP & Chaitali Shah, MA (Economics)

What is a Critical Illness?

Critical illness is a serious health condition like Heart Attack, Cancer, Paralysis, Stroke, Kidney Failure, etc which can lead to one’s inability to work and thus loss of income.

Why do we need Critical Illness Insurance?

A critical illness insurance policy covers incidental costs that may arise due to any significant disease or disability that may hamper one’s ability to work or maintain the income flow. The food that we eat, our habits and the environment that we live in is much worse than what it was ever in the past. Many youngsters are being diagnosed with diseases like cancer, stroke or total or partial paralysis. If the affected person is the sole breadwinner of the family, the problem further intensifies.

Do we need Critical Illness Insurance when Health Insurance exists?

Health insurance does not cover all financial risks associated with life threatening diseases. Some routine OPD (Outpatient Department) expenses  are also not covered by Health Insurance.

With the onset of critical illness, a patient may suffer loss of income, there may be non-payable expenses under health insurance and there may be recurring OPD expenses. There may be regular costs of home – nursing. Critical Illness insurance offers a lump sum benefit to deal with these additional risks and expenses.

Who must buy Critical Illness Policy?

People who smoke, drink regularly, eat out often and people with a family history of serious illness should consider buying a critical illness policy.

However, some people having the best of lifestyles can also get diagnosed with critical illness. Critical Illness policy is recommended for earning members of the family.

What should be the cover amount?

Earning members need a much larger cover compared to non-earning members. The policy should ideally cover loss of earnings, outstanding loan amounts, non-payables expenses and OPD under the current health insurance policy.

Non-earning members can take a policy adequate to cover non payable expenses and OPD. A Rs.5-10 lac cover should suffice for non-earning members.

Important Considerations:

Number of illnesses: Critical Illness policies can cover anywhere between 15 -64 critical diseases. The number and type of illnesses varies across different service providers. The premium amount may be higher for policies covering a higher number of diseases.

Initial Waiting Period: Most policies have  a 90 day initial waiting period from the time the critical illness policy is bought for it to be effective.

Waiting period for Pre-existing diseases: In case one has a disease or adverse medical condition that was present before, or at the time of, taking the critical insurance policy – expenses that occur as a result of this pre-existing ailment will not be covered. The waiting period could be anywhere from a few months to 4 years.

Survival Period: It is a period during which the policyholder should survive after he/she has been diagnosed with a covered illness to get the policy benefit. If the claimant dies during the survival period, the policy may not pay the claim. The survival period for most policies is 15-30 days.

Differences between Critical Illness Rider and Standalone Critical Illness Policy

A critical illness rider accompanying a term plan may have limitations for the amount covered, however a standalone plan will not have such limitations. One can buy a Critical Illness standalone policy with a Sum Insured starting INR 10 lakhs to INR 2 crores.

The rider bought with a base term plan has no additional documentation requirements. For a standalone policy, all the documentation and medical test requirements have to be fulfilled.

A critical illness rider may cover only advanced stages of an illness on the other hand specialised standalone policies may also cover early stage critical illness.

It is to be noted that a standalone policy provides a wider coverage at an additional cost.  The cost increases with age.

Deduction under Section 80D

Premiums paid towards Critical Illness Policies are eligible for deduction under Section 80D of the Income Tax Act. One can claim deduction for self, spouse, dependent children and parents.

One must select a plan that fulfils the maximum requirements with minimum exclusions. Always remember to read the terms and conditions of the critical illness plan document carefully before signing it. And select a plan that meets your needs.

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Namrata Singh is a Certified Financial Planner with more than 14 years of experience in banking and wealth management. ([email protected])

Chaitali Shah, MCom & MA (Economics) was a Financial Economics – Faculty at Wilson College, Mumbai ([email protected])

(Please note all views are personal)

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