Rising medical expenses have increased awareness about health insurance over time, making it mandatory for every individual to include it in their financial portfolio. However, if you are afflicted with a critical illness, your financial needs would extend beyond covering the treatment cost. You might be forced out of action for months or years together arising the need for a fund to supplement your income. This is where a critical insurance comes into the picture.
Critical insurance is primarily a health policy that pays out the sum assured, which is a lump sum amount, to the policyholder upon diagnosis of a critical illness such as cancer, stroke, kidney failure etc.
How does it work?
While a general health insurance pays out the amount incurred as hospitalisation cost to the policy holder (or directly to the hospital), critical illness cover makes a one-time payment of the sum assured upon diagnosis of a critical illness. This amount can be used for anything: from meeting the costs of treatment to covering household expenses such as paying bills, tuition fees, rent, replacing your income, etc. The number of critical illnesses covered vary from one insurer to the other. However, the diseases that are typically covered include cancer, heart attack, kidney failure, bypass surgery, organ transplant, etc. These illnesses come with bigger financial liabilities than just paying for the medical and hospitalisation expenses. One might be forced out of action for months or years together. A critical insurance is capable of supplementing the loss of income due to prolonged hospitalisation.
There is a waiting and survival period associated with every critical illness cover. While the waiting period refers to the time period between buying a critical insurance product and a critical illness getting diagnosed, survival period refers to the number of days one survives after diagnosis of a critical illness. One needs to survive for 90 days post diagnosis of a critical illness to claim protection.
Things to keep in mind before you decide on a product, following are some factors you must consider.
Estimate the coverage
You need to assess the size of the cover you require based on expenses such as mortgage payment, EMIs, rental payment, utility bills etc. that need to be paid for in case of hospitalisation. Also consider the impact of inflation. Ideally you should look for a cover worth four to five times of your annual income. However, you can be a little lenient on yourself if it is a stretch for your budget, as you don’t want to strain yourself financially.
Look for diseases that are covered
While the diseases covered vary from insurer to insurer, stroke, cancer, heart attack etc. are covered by most insurers. Make sure the diseases that you are susceptible to or have a family history of, are covered by the product you pick. You should opt for a policy that offers protection against different organs afflicted by one illness rather than different organs afflicted by different illnesses.
Before you opt for a policy, look at other features such as no claim and renewal bonus. Go for a product that would allow you to top up or increase the sum assured from time to time, as your requirements are going to go up in time, given your health could deteriorate with age and inflation would impact the value of money.
Should you opt for a separate policy or go for a rider?
Both options have pros and cons. A CI rider with a life or health insurance plan may be easier to manage in terms of premium payments. However, you have less control over the sum assured or the tenure. Standalone covers allow you greater freedom to choose a larger sum assured. They may also provide a wider coverage of critical illnesses.
Different from health insurance policy
Last but not the least, a critical illness policy is not a substitute for health insurance policy. You need to have adequate health insurance to cover your hospitalisation and treatment cost for any emergency or chronic illness. To top it up for any critical illnesses, you must get a critical illness cover. A critical illness makes a lump sum payout upon diagnosis of a critical illness which can be used for any virtual purpose.
The writer is CEO, BankBazaar