The Importance Of A Critical Illness Policy

Like life and health insurance, having critical illness insurance is equally important. This is because neither life nor health insurance provides coverage for many of the critical illnesses. Moreover, health insurance would not cover more than hospitalisation expenses. It will fail to cover loss of income that you may face due to the longer time you spend during recover

The recent pandemic has taught us a lot of personal finance lessons. It has certainly awakened us to the importance of having life and health insurance. The insurance sector in India has very low penetration when compared with the global average. Even in insurance, only life and health-related insurance plans are the most sold products. Further, a majority of those who buy life and health insurance do so from a tax saving perspective and not as a risk containment necessity. That is because premiums of life insurance are eligible for deduction of up to Rs1.5 lakhs under Section 80 C while health insurance premiums are eligible for similar deduction of up to Rs25,000 under Section 80 D of the Income Tax Act.

However, it is high time people should understand the actual purpose and importance of having them both. As said earlier, the penetration of life as well as health insurance is low in India and therefore looking at critical illness insurance penetration would be pointless. It is bound to be quite lower than that of life and health insurance. However, ignoring critical illness insurance cover can also burn your pocket. The general argument could be that with health insurance in place, is there a need for critical illness insurance? There is, simply because there are some illnesses that are not covered by health insurance policies.

In order to have a better perspective, let us take the example of a couple, Rahul Shah and his wife Anjali. Both are IT professionals from Pune and have achieved quite a lot in life. However, there came a day when Rahul was diagnosed with brain tumour. Their health insurance policy covered only hospitalisation expenses. But such was the illness that it made Rahul incapable of continuing with his work. This burdened the couple with a financial disruption because they did not have a critical illness insurance plan in place that could work as an added safety net.

There are many couple like these who are unaware of the benefits of having a critical illness insurance policy. Therefore, in this article we will understand what a critical illness policy is, how is it different from a normal health insurance plan and the benefits and importance of having critical illness insurance. Apart from this, we would also understand whether to go for a standalone critical illness policy or opt for a rider that is available with your life and health plans.

Critical Illness Insurance
Critical illness insurance is an insurance cover where the insurance company pays a pre-decided sum assured in lump sum to the policyholder if he is diagnosed with a critical illness or undergoes any of the surgeries covered in such a policy. Typically, a critical illness insurance policy may cover cancer,major organ transplant, cardiac arrest, multiple sclerosis, third degree burns, aorta graft surgery, heart valve replacement or repair, coma, etc. However, one thing to note here is that pre-existing conditions are not covered under a critical illness insurance policy.

The policy may require the insured to survive a minimum number of days, known as the survival period, from when the illness was first diagnosed. The survival period varies from company to company. But for most of the companies it is around 30 days post diagnosis. Life, general as well as standalone health insurers offer critical illness cover. From the taxation perspective, premiums paid against a critical illness policy are eligible for deduction under Section 80 D. Though, we would urge you not to take critical illness insurance for the sake of tax saving.

Importance of Critical Illness Policy Medical inflation is on the rise and so are the cases of critical illness. Therefore, it makes complete sense to have a critical illness policy in place. Astronaut Neil Armstrong once said, “We tried not to be overconfident because when you get overconfident, that’s when something snaps up and bites you.” Therefore, it’s not at all prudent to remain overconfident when it comes to your health and life. For example, a liver transplant can cost as much as around Rs14-16 lakhs. That’s certainly expensive! It is not just the treatment cost; it is even the time you might require to recover which can be a lot more than your allotted paid leave from office. This can surely result in a loss of regular income. And this may happen when your expenses are on the higher end due to medication and medical consulting. If you have a critical illness policy in place, it will take care of all these things to a great extent.

Policy Comparisons
When it comes to buying a critical illness policy, people argue that they are too young for a critical illness cover or they already have a health and a life insurance policy. On the contrary, we believe that it is never too early to buy a critical illness cover. Especially so when health reports suggest that the young too are falling prey to critical illnesses like heart disease, cancer, etc. Recent studies show that there is a steep rise in the occurrence of critical illnesses between the ages of 26-35 years. There are people who defer buying a critical illness policy because they already have health and life insurance plans but fail to realise that the purpose of both the policies is altogether different. So let us understand the difference between the two.

Premium Amount
The normal health insurance cost is higher when compared with critical illness because it covers a wider scope of possible events. As critical illness covers only certain pre-determined medical conditions, its premium cost is lower. In case of a critical illness policy, if you are diagnosed with one of the covered illnesses, then you are entitled to receive the entire sum assured as a lump sum benefit. However, you are allowed to make only one claim during the policy duration. When it comes to a normal health cover, the company pays depending on the incurred cost up to its sum assured. To give you an idea about the premium differential between normal health insurance and critical illness insurance, we have assumed a sum assured of Rs10 lakhs for both and calculated the premium for a 30-year-old healthy male.

Insurance Coverage
A normal health insurance policy usually includes hospitalisation due to a medical condition or accident, pre and post-hospitalisation expenses, domiciliary treatment and day care procedures, amongst others. A critical illness plan, on the other hand, covers specified diseases, which differ from one insurer to another. A critical illness policy covers events that are outside the purview of normal health plans. These include travel, loss of income, boarding and post-operative care. Funds are also available for costs incurred due to change in lifestyle after the diagnosis.

Sum Assured
The sum assured of a normal health insurance plan is not that huge. A normal health policy functions on an indemnity basis, which means paying expenses only in case of hospitalisation. On the other hand, with critical illnesses cover one can get a much higher assured sum and it is paid off in lump sum. Hence, a normal health insurance plan may or may not cover critical illness as effectively as a standalone critical illness insurance plan.

Conclusion
In order to preserve your financial goals, risk management is important. And when we talk about risk management, it means managing risk to life, health and assets. Here, it is important to have the right insurance policies with adequate assured sums in place. Like life and health insurance, having critical illness insurance is equally important. This is because neither life nor health insurance provides coverage for many of the critical illnesses. Moreover, health insurance would not cover more than hospitalisation expenses. It will fail to cover loss of income that you may face due to the longer time you spend during recovery. Therefore, we would highly recommend buying a critical illness policy. This implies having a standalone critical illness policy and not the critical illness rider that may be available with your life and health policies.