Life Insurance is not enough to cover all health risks

Shilpa, aged 45 is a single mother and she has been recently detected with a malignant tumour in her right thigh. She has a 15-year old son and his education, and their life was completely dependent on Shilpa’s income from her job. The tumour had to be operated upon and her 10-year old life insurance policy did not cover the treatment expenses since tumour is listed as a critical illness. She had not opted for a critical illness insurance cover, assuming the life insurance cover to be sufficient. In order to meet the treatment expenses, she had no choice but to break the savings accumulated for son’s higher studies.

Life insurance policies such as pure term insurance plans are often customized to provide financial safety for the policyholder’s family in the event of his/her death. But what if the policyholder is the sole earning member of the family and is diagnosed with a terminal/critical illness? Critical illnesses such as cancer, heart stroke, organ transplant, etc. are expensive to treat, and run the risk of eating into a family’s entire savings for their cure. In addition, the subscribed life insurance policy would be of little help to the policyholder’s health condition, despite opting for a critical illness rider along with the base policy. In such cases, the rider’s sum assured is linked with the base policy’s sum assured.

By availing the critical illness benefits, the insured might end up having either a reduced or even zero-premium payment, since the policy coverage amount would have been incurred towards treatment costs. Given such details of critical illness policies and the limited health risks they cover within the ambit of associated base policies, stand-alone critical illness (CI) insurance policies serve as a flexible option to cover critical illnesses.

What is a critical illness (CI) insurance plan?

A critical illness insurance (CI) plan covers the insured against life-endangering critical illnesses such as tumour, heart attack, cancer, renal or liver failure, multiple sclerosis, etc, by providing a lump sum amount to the insured upon being diagnosed with a critical illness covered under the policy. The lump sum amount facilitates the treatment costs for the insured. The insured can avail the benefits of the policy as per its terms and conditions only after surviving a minimum number of days from the time of policy enrolment. A CI policy covers a majority of critical illnesses as compared to the ones covered under a mediclaim.

Features and Benefits of Critical Illness plans

  • Coverage: The coverage amount offered under a CI plan is comprehensive, flexible and based on the diagnosis of the critical ailment of the insured. In contrast, the coverage offered under the critical illness depends on the sum assured of base policy and shall not exceed it. Also, CI plans cover more than 20 critical illnesses, including the rarest of the rare ones. Some even cover 59. Regardless of the insured’s hospital expenses, a CI insurance provider pays the full sum assured that can be utilized as income replacement or for repayment of insured’s personal debt, if any.
  • Tenure: CI plans offer multiple tenure options ranging from 5 years to 30 years to cover the insured from any critical illnesses within the chosen period. The longer the tenure, the better the coverage for the insured.
  • Premium: Unlike the fixed nature of life insurance policy premiums, the premium paid towards the CI policy changes as per the age and health condition of the insured. The younger the insured, the higher the coverage at lower premiums. The premiums may be paid on a monthly/quarterly/semi-annual/annual basis based on the policyholder’s convenience.
  • Waiting period: Most CI policies have a waiting period of 30 to 90 successive days before the coverage is enforced. This is usually done to eliminate cases with pre-existing critical illnesses.
  • Claim processing: CI policies usually allow for multiple claim benefits and the claim is easily processed based on the diagnosis report(s). However, in order to make a claim, the insured needs to survive for 30 contiguous days post the diagnosis of a critical illness.
  • Mode of Purchase: Several insurers offer special discounts to their customers for online purchase of CI plans. It not only saves time but also reduces any additional charges that might be incurred upon buying it from a registered agent. Also, most online CI plans allow their purchase without undergoing a medical examination.
  • Tax Benefits: Irrespective of the insurer, critical illness insurance provides the policyholder with tax benefits under Section 80D of the Indian Income Tax Act, up to Rs. 25,000 for persons aged below 60 years, and up to Rs. 30,000 for persons aged above 60. Similar additional deductions for parents’ cover are also applicable under Section 80D.

Critical Illness Rider vs Critical Illness plan: Which is better?

As the critical illness rider attached to a life insurance policy cannot cover all the health risks, especially critical/terminal illnesses, and given that the benefits of choosing a stand-alone critical illness plan far outweigh the rider benefits, it would be better to opt for an exclusive CI plan to cover critical illnesses. Online purchase of CI plans such as the Future Generali Heart and Health Insurance plan would be a wise idea of saving extra bucks by availing special discounts. This comprehensive CI plan covers the insured against 59 critical illnesses from early stages onwards by paying a lump sum amount upon diagnosis. In addition to the flexibility to choose between 4 cover options, the plan also offers an inbuilt death benefit, multiple claim benefits and a special waiver of premium benefit for 5 years following the diagnosis of any minor/moderate condition. The CI policyholder is entitled to claim tax benefits under section 80C and 80D of the Indian Income Tax Act. This CI plan can now be bought online directly from their website by availing a special 5 percent discount on its premium rates.

Last but not the least, a separate critical illness plan and a life insurance policy can only supplement each other in helping the policyholder and his family during exigencies. Neither can serve as a substitute for the other. Thus, a separate critical illness plan may demonstrate an efficient coverage of the insured against terminal illnesses during his/her lifetime, but it is always essential to remember the importance of a life insurance cover in providing a holistic financial safety net to the insured’s family in his absence.