The rise in lifestyle diseases caused by stress and a fast-paced lifestyle has highlighted the importance of including critical illness coverage in your health insurance portfolio. But do you know life insurance providers also provide critical illness riders in addition to basic life insurance coverage? In addition, there are standalone critical illness policies with disease-specific coverage.
Now, the confusion is, whether you should purchase a separate policy just for critical diseases or a single, comprehensive insurance coverage with an add-on benefit works better.
The importance of taking critical illness with your Health Insurance policy
Have you ever wondered if you were diagnosed with a serious condition, such as a stroke that can cause paralysis, and your treatment would last years and entail recurring expenses that would render your health insurance coverage ineffective? Furthermore, it may result in a loss of income, which your health insurance does not cover. In this scenario, critical illness plans can help.
Define: These specialized plans give you a lump sum payment upon diagnosis, regardless of whether you have filed a claim under your health insurance policy or not. These are defined benefit plans, in which you know how much you will receive regardless of the actual cost of treatment. Typically, a lump-sum payment (the total sum assured) is made once the sickness is diagnosed and the policyholder has completed the survival term, which can range from zero to 30 days post-diagnosis, depending on the insurer and product. The policy expires once the payout is made, unless your product includes conditions that limit the payout to 25% in the case of certain minor ailments, such as loss of hearing in one ear. In such circumstances, the remaining sum promised will be available for other mentioned ailments.
Doesn’t come with specific end usage: You can use the payout not just to pay your hospital bills, but also to cover any loss of income, lifestyle changes, equipment purchases, physiotherapy sessions, and so on. They cover diseases like heart attacks, cancer, cardiovascular ailments, and kidney issues, as well as organ transplants, vision loss, and even Parkinson’s and Alzheimer’s disease. The list of illnesses covered varies depending on the insurance company and the plan the policyholder has chosen.
Limitations: There could be limits on the amount guaranteed to be paid for specific treatments, such as angioplasty—the maximum claim payout could be limited to, say, 50% or an ad hoc amount of Rs 12 lakh.
Important Aspect to know beforehand when choosing a Critical Illness Policy
When selecting a critical illness policy, make sure that the coverage is adequate for serious illnesses and treatment procedures. A liver transplant, for example, can cost anything between Rs 25 and Rs 30 lakh. The critical illness sum assured should be sufficient to cover the entire cost of a critical illness, including obtaining a second opinion from international experts if necessary. Taking a sum assured of Rs 1-2 lakh will be inadequate. HNIs (high net-worth people) should look at a sum assured of Rs 50 lakh or higher.
Critical illness riders—premiums may be cheaper, but are connected to base life cover.
Riders add weight to your protection portfolio. While a term life insurance provides financial security for your family, a critical illness rider can assist you and your family if you are diagnosed with a serious illness and face the possibility of losing your income while recovering.
Limitation: According to the Insurance Regulatory and Development Authority of India (IRDAI) norms, a critical illness rider’s premium cannot be more than that of the base life insurance policy. The maximum benefit amount paid out to critical illness riders must be less than the basic policy’s sum assured. So, if you buy a Rs 50 lakh life insurance policy, the critical illness benefit will be limited to that amount.
Important Aspect to know beforehand when choosing a Critical Illness Rider
When buying the critical illness rider, one should understand that it should be purchased along with your basic term life insurance plan as rider coverage can sometimes be cheaper than a single policy.
- Critical illness riders affixed to life insurance policies provide coverage as a percentage of the base sum assured. If your term life insurance premium is low (as it is for younger buyers), the critical illness rider premium will be even lower, and the coverage you receive at that price may be insufficient.
- Also, the period of a critical illness rider is the same as that of the base insurance. So, if your term life insurance policy expires with your retirement, which is usually the case, you will be unable to use the rider’s benefits beyond this date, when the need may be higher.
- So, if you believe that critical illness coverage is important, make sure that the rider benefit is substantial—at least Rs 25-30 lakh—and select your life insurance policy’s base sum assured accordingly. Do not settle for a rider benefit that is only a small portion of your life insurance coverage. However, if you do not require such extensive life insurance, you should consider purchasing a separate critical illness policy.
Which one you should pick?
The answer to whether you should pick standalone or rider coverage will be determined by the following major factors: premiums, illnesses or treatment methods covered, whether you need the coverage, the ease with which you can pay premiums, etc.
Disease-specific policies, such as cancer coverage—provide more comprehensive coverage for that specific sickness. For example, a cancer-specific policy may also cover early-stage malignancies, as opposed to advanced-stage cancers under a comprehensive critical illness policy. Such plans can be recommended if there is a family history of such illnesses, else comprehensive critical illness covers are preferable.
These, like other health insurance policies, are renewable for life. “A standalone critical illness policy will typically last one year (or two to three years if you choose to pay multi-year premiums all at once). You can also cover your parents, spouse, and children with family floater options, which is not possible with critical illness riders.
However, unlike a rider add-on, where prices are fixed for the duration of the policy, standalone coverage premiums may be reassessed on a regular basis based on the insurance company’s claim experience and healthcare inflation, among other factors.
In other words
If you want permanent and more flexible coverage, a standalone critical illness policy is a better option. You can choose a rider if you are willing to accept reduced coverage (because it cannot exceed the sum assured of a life policy) and prefer fixed premiums.
