What are Critical illness Policies and how are they effective

Insurance policies are of different types. Life insurance and medical insurance are the most popular insurance covers for individuals and families. Usually to protect a person from the threats against his/her life, a life insurance cover is often used. Medical uncertainties are taken care of by the medical policies. However, the medical insurance does not cover critical illnesses. There is a significant difference between the two. And that makes it evident that one should never undermine the importance of a critical Illness policy. 

What is a critical illness?

Illnesses like cancer, organ transplant, heart attack, stroke, renal failure and paralysis are called critical illnesses. The major ailments or the types of diseases covered by a policy will be more or less the same irrespective of the insurance company that you end up choosing. 

What is a critical illness plan and why is it different from normal plans? 

If you have taken normal health insurance, it works as a comprehensive hospitalization coverage. But critical illnesses need a different kind of insurance meant to specifically cover a list of deadly diseases solely, as the normal health plans do not cover them. You cannot claim anything if you suffer from any of the critical illnesses under the normal plans. If your ailment falls within critical illness criteria, it is highly unlikely you will benefit from a regular health insurance cover. 

• When diagnosed with a critical illness, the claim becomes payable without getting hospitalised. A regular health plan reimburses the hospitalisation expenses on submission of bills by the policyholder. There could be cashless facilities available too. 
• Regular health plan covers pre as well post hospitalisation expenses. Whereas the critical illness plans are specifically meant to take care of as much as 36 major ailments and end up with payment of a lump sum upon finding a critical illness supported by a thorough diagnosis.
• Critical illness policies will be huge enough to cover all the expenses incurred for treating any life threatening illness. You can get a lump sum if it is determined that you have any of those critical illnesses. Normal plans cannot take care of the huge sum of money needed for treatmenting them. Once you have a critical illness cover, it can pay the higher sum insured. Moreover, a critical illness takes longer to cure than usual. It becomes difficult to replace the lost income, repay debt and make some other lifestyle changes when you face uncertainties due to a major illness. 
• The waiting periods also differ under both the plans. A regular health plan usually pays up after a 30 days’ waiting period. Critical illness plans require a longer waiting period depending upon how severe the illness is. 

Why is it required?

Life has become uncertain and to follow a healthy routine is almost like a dream. We all work under pressure and a lot of physical and mental stress is part of our survival game. The number of critically ill people is growing day by day. We cannot run away from this fact and there is no surety that we will never get affected by any of those major illnesses. The wise step is to accept that since our health has taken a backseat, we should at least try to secure it by taking an illness cover to help us fight against the unforeseen eventualities. 

Even the younger generation is likely to suffer from a heart attack. Unhealthy food habits, smoking, lack of time to do exercise etc are few of the worrisome scenarios challenging our lives. If you do not get an individual policy to protect yourself from a dangerous ailment, you might end up not getting proper treatment despite losing all your money for it. There are many disheartening possibilities which you cannot think of now, which may occur as a result of any such diseases. If you get a cover it can relieve you from financial worries in case of such contingencies becoming a reality. A huge sum of money is assured to treat a specific deadly ailment which normally a health plan would fail to cover. Hence it is important to get a critical illness policy and make a provision for the additional requirements as and when needed. 

Benefits of a critical illness cover

1. It provides coverage against critical illnesses-To get yourself covered against the major ailments only critical illness insurance is useful. Make sure that the policy covers all those ailments for which you intend to buy it. Some plans offer coverage for a few critical illnesses as against others which may cover more ailments. Mainly these policies cover heart disease, stroke, epilepsy, some specified type of cancers and disabilitility triggered by an underlying condition.
2. Tax benefits: Just like health insurance, a critical illness policy allows tax benefits. The premium paid as well as the payout on critical illness insurance is exempt from tax. (Section 80C and 80D of the Income Tax Act)
3. Extends financial support during difficult times:The person who goes through a major ailment needs financial support both for his/her treatment and to pay the bills for his/her family. Obviously the disease might affect to an extent that he/she might not be able to work and income generation will be an additional trouble if the patient himself/herself are the bread earners. By getting a critical illness cover, the policyholder gets a lump sum amount and it can be used to pay not only the medical costs but also the household expenditure. 
4. Quick and problem free procedure: Once you select a health plan for covering critical illnesses, the process of receiving money from your insurer is quick and easy in case of need. All you should do is to prove your claim and the money will be released without any difficulties. You will get the lump sum amount when you need it the most. The claim process is based on the diagnosis reports.
5. Waiting period:The coverage is provided after the end of the waiting period. 
6. Treatment in a foreign country:The treatment can be undertaken even in a foreign country because a fixed lump sum is paid to the policyholder on the diagnosis of a critical ailment. You can use that money for your treatment anywhere you want.

Who needs to get a Critical illness cover?

With better techniques to cure diseases, the cost of treatment is constantly rising. The chances of being susceptible to a major ailment cannot be ruled out because of one’s status of fitness today. Tomorrow is never guaranteed. Many of us have a family history of critical illnesses. Never underestimate the need to be financially viable to meet the cost of treatment in this scenario. Without any exception we need to take a critical illness cover whether with or without any history.

What else do you need to know?

Different insurance companies provide critical health insurance in India. Look at the number of illnesses the plan covers when you decide to choose one for yourself. From at least 7-8 to 36 diseases are covered by these policies. Since the premium amount also depends upon the selection of the policy, choose the one which best suits your needs. 

It is necessary that your family knows about the insurance plan that you have taken. The clauses regarding the policy should be well understood by them. If you have an ongoing condition, you will not get covered by any of such plans. 

Once a specified period is over after getting the cover, the policy will become effective. There is a survival clause according to which the policyholder gets a certain benefit if he/she survives a definite period after getting diagnosed with a major illness. It is advisable to know everything in detail about your policy so that when the time comes to claim the benefit, you or your family do not face any troubles. 

The following are the general features provided by critical illness insurance plans. They are subject to change as per the conditions of insurance policies offered by different insurance companies. 

• Sum assured is usually a lump sum amount. Depending upon the critical illness, the costs also vary. You need to decide how much coverage you need.
• 8-36 diseases are covered by these policies.There is a survival period of 30-90 days.The waiting period is 30 days from the beginning date of the policy. There could be sub limits under these policies which means you have to bear the rest of the costs. This limit is applicable to the total sum assured. Before you choose, understand that a few plans put more weightage on surgical matters whereas a few others on lab tests. Accordingly they cover the costs.
• As the senior citizens are more likely to get affected by the critical illnesses, the premium amount is usually higher for them. However, they get a wider coverage.
• Age matters when you opt for any major ailment coverage. Standalone policy has a higher insurance premium as compared to a rider. Riders also provide insurance against the critical ailments in a similar manner but the sum assured is less as compared to a standalone plan. Standalone policies offer comprehensive coverage so it is better to choose them. 
• It is important to know about the inclusions and exclusions of critical illness insurance. For example, the plan could be specifically meant to cover a particular disease and excluding others.
• Few of these insurance policies provide coverage only upto a specified age whereas a few others offer lifelong coverage.  There is either maximum age or a lifelong renewability clause. You may choose to opt for a plan with maximum renewal age.

Is the critical illness cover useful?

It all depends upon your lifestyle and your financial situation. If you are not covered by any benefits usually given by the employer,  then critical illness cover is a must. However, the cons of having a critical Illness cover are:

1. The critical illness plans do not cover all the illnesses. Even when it is listed, it cannot be said that it will be covered and paid fully because sometimes it all depends upon the severity. 
2. The premiums rise with age as the likelihood of you making the claim also increases. This serves as a pricy benefit.
3. There are age restrictions.
4. It is advisable to get expert advice as some of these policies are complex to understand. 

Critical illness policies offered by various companies with their features 

1. LIC’s New Critical Illness Benefit Rider-It is a non-linked rider helping the family of the policyholder who needs medical help for a critical ailment. Even if you have bought any LIC term insurance policy, you can take this rider if the original policy is a non-linked one. This can be done at the time of commencement of the base policy. The beneficiary will receive the death benefit and the sum assured under the rider in case of the policyholder’s death. Since it is an add-on plan, it is dependent upon the continuance of the original policy. 

It covers: Cancer of defined severity, Benign Brain Tumour, p

Permanent paralysis of limbs, Alzheimer’s disease/Dementia, a Major Organ or Bone Transplant, Open heart replacement/repair of heart valves, Multiple sclerosis with persisting symptoms, Open chest CABG, Kidney failure, Third-an degree burns, Blindness, Primary pulmonary hypertension, Aortic surgery, Stroke and Myocardial infarction. 

Minimum age at entry is 18 years and maximum is 65 years. Minimum sum assured is Rs.1,00,000 whereas maximum is an amount equal to the sum assured on death under the base plan subject to the maximum as fixed in the base plan but not exceeding an over limit of Rs. 25,00,000 critical illness sum assured taking all existing policies of the life assured under this rider and the critical illness sum assured under the new proposal into consideration.

Features of the policy:

1. Waiting period-The waiting period is 90 days from the commencement of risk/revival of the policy and the rider whicher is later to the time when the illness is diagnosed. 
2. Survival period-It is a period from the date of illness diagnosis to 30 days. The policyholder should survive for the first 30 days from the date of the diagnosis. 
3. Grace period-This is a period allowed to a policyholder for clearing the dues/premium without any penalty. Depending upon the regularity with which he/she pays the premium the grace period is 15/30 days. The policy will lapse if these dues are not paid off. 
4. Benefit of surrender-As there is no paid up value, there is no surrender value. If the premiums are paid fully and on time, the surrender of the basic policy shall result in a partial refund in certain situations. 
5. Free-look period-A new policyholder is given a 15 days’ free-look period if he/she is not satisfied with this policy. The reason for objection shall have to be stated while returning the policy. 
6. Tax benefits-It is eligible for deductions u/s 80C and 80D of the Income Tax Act.
7. Dissolution/Termination-This plan shall stop existing if:the claim amount is paid to the policyholder, the base policy gets cancelled, the rider reaches the date of its expiry, the critical illness is diagnosed with the waiting period or the base policy becomes a paid-up policy. 

 2. HDFC Critical Illness Health Insurance-This policy covers upto 15 critical       illnesses. It assures the lump sum clearance in a single transaction. There are two such available plans. It also allows a 15 days free look period beginning from the date of receipt of the policy document. The policy has a lifetime renewal period. There are no medical check-ups until the age of 45 years. And tax benefits are available. The survival period is of 30 days and all the claims after a waiting period of 90 days are entertained. The coverage is provided to individuals aged between 5-65 years.There is one claim that is available during the lifetime of the policy. 

The silver plan covers Heart attack, Stroke, Coronary Artery Bypass Surgery, Cancer, Kidney failure, Multiple Sclerosis, Paralysis and Major Organ transplants etc. Another policy offered by HDFC is known as Platinum plan. The sum assured is maximum up to Rs.50,00,000.The policy term is 1-2 years.

3. SBI Health Insurance-SBI health insurance covers 13 critical illnesses. The maximum entry age is 65 years and minimum is 18 years. There are two- 1 year and 3 year plans and the policy covers a claim upto Rs. 50,00,000. The survival period is 28 days. And the minimum assessment period is from 28 days to 180 days. The health insurance plan gives a 15 days free look period. Only a single critical illness claim can be made during your lifetime under this policy, once the payment is made during the policy term for one critical illness, the policy gets terminated. The minimum coverage under this plan is for Rs. 2 lakhs. The policyholder shall be given a maximum of 60 months’ gross income or Rs.50 lakhs whichever is higher. Income proof shall be required for this purpose. 

Depending upon your medical history,age and sum insured chosen, there could be a need to undergo a pre medical screening. Those who are above the age of 45 are mandatorily required to do a satisfactory medical examination. The cost of such examination will be 50 percent compensated by the insurance company if the insurance is finalised. The maximum amount of sum insured is Rs.15 lakhs for those above 60 years of age and who are getting the cover for the first time.

4. Reliance General Insurance-The policy period is of 1 and 3 years. The sum assured are 5,7 and 10 lacs. This plan covers 10 critical illnesses. Eligibility age is from 18 to 65 years. Waiting period is 3 months from the inception of the policy and the survival period is 30 to 60 days. There are two categories of life threatening and lifestyle disabling ailments under this policy. Cancer, Major organ transplant, Multiple Sclerosis, third degree burns and aorta graft surgery are considered to be life threatening diseases. Heart valve replacement or repair, Coma of specified severity, Coma quadriplegia, total blindness and end stage renal disease requiring regular dialysis fall under lifestyle disabling ailments. The maximum age to get a Reliance critical illness policy for 10 lakhs sum insured is 55 years. 

It offers In-patient treatment cover, pre and post hospitalization cover. Organ donor expenses too are covered. Then there are NCB benefits like if there is no claim made for the first year there will be a bonus of 5%. A 10% no claim bonus on a cumulative basis for each claim-free year for a 3 year term up to a maximum of 50%.

5.ICICI Critical Illness Insurance Cover-There is a benefit payout up to Rs.1 crore in case of 34 life critical illnesses. In case of death due to an accident, the nominee shall be paid double the sum assured amount. ICICI Pru iProtect Smart offers affordable premiums. It covers till age 99. There are four payout options namely, Lump sum, Income based, Increasing Income and Lump sum plus Income. Terminal illnesses such as AIDS are also covered.It gives you the option to add accidental benefits now or later. 

A comparative study of various Critical Health Insurance Policies is given below

There are chances that the cover claims are not paid out. The most common reasons could be:

• The illness is not covered by the policy.
• The condition is not serious enough to warrant a pay-out.
• The medical documents are not evident enough to support the critical condition.
• The illness is caused by using drugs or alcohol.
• While filling the form the policyholder has failed to disclose information or has been untruthful.

All the policies specifically mention what is excluded from it. It is better to read that part before taking the policy and before making a claim. 

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Krishna Rath is a SEBI Registered Investment Adviser, and since 2015 has been educating netizens on investments and insurance. Krishna is a fee only SEBI RIA and is Odisha's first SEBI RIA. With background in IT, Krishna is changing the advisory space with new innovations in AdvisoryTech.

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