What is Critical Illness Insurance? – Decoding Insurance

Couple of years back my uncle suffered a celebral stroke. He was treated at a nursing home and discharged with partial paralysis. Since he had a health insurance the expenses incurred due to his hospitalization were recovered. Post discharge treatment at home was costly and my aunt was broken both mentally and financially. My uncle did not survive the ordeal for long. But, this raised a question in my mind. Am I covered against such situations where neither my health insurance nor life insurance policy will pay? I was not. That was the time I realized the importance of critical illness insurance and opted for one immediately.


What is Critical Illness Insurance?

Critical illness insurance covers us against the onset of any disease out of a defined list of major illnesses. The list varies from company to company and also policy to policy. But the definition of each disease is more or less standard across industry. That means, if Company A covers leukemia under Cancer, so will Company B, C and D. So what matters while comparing similar policies are, the number of critical illnesses covered. Paying mechanism of these policies are different from traditional health insurance policies. Here hospitalization is not mandatory, but diagnosis is. Once a person is diagnosed with any of the defined critical illness with severity as defined in the policy, the insurer shall pay the entire insured amount. Options exist for pay out. While most companies pay the entire amount as lump sum, few offer phased payout (e.g., a fraction in lump sum and remaining in 60 equal installments) and some pay for treatment as well.

Why Critical Illness if important?

  1. Health insurance pays if one is hospitalized, Life Insurance pays if one dies. Critical illness plugs the gap for cases when one is terminally or critically ill, bed-ridden and unable to work.
  2. Treatment of major illnesses like cancer, stroke and organ failure involve huge expenditure which may leave the family in distress. Having a critical illness for substantial amount over and above the basic health insurance can help in such cases.
  3. Treatment is not mandatory. The payout for these policies are known asbenefitand can be used for any purpose. A person with a terminal illness ay utilize the amount for fulfillment of his/ her last wish or for securing the future of the surviving family.
  4. These policies not only covers major illnesses but may also cover some major medical procedures related to diseases(e.g., CABG or Coronary Artery Bypass Graft, organ transplant), major accidents(e.g., head trauma, severe burn) and medical condition (e.g., coma, paralysis, blindness, deafness).

Important points to note while opting

  1. These policies are offered by both Non-Life Insurer as well and Life Insurers.So there are options galore.
  2. They are available as standalone product, as well as add-on cover with existing Health of Life Insurance policy.So can be tied up with your existing policy.
  3. In market, there are products covering up to about 40 Critical illnesses.You may decide based on your family history, present health condition, premium applicable and lifestyle diseases.
  4. Any Critical Illness diagnosed before taking the policy is normally not payable ever under the policy. Butthere are exceptions, where such illnesses are covered after a waiting period of few years.
  5. Renewal clause varies from company to company. Some do not allow renewal for a person who has claimed for a critical illness, whereas some allow renewal but do not cover the any illness already paid for.
  6. Generally after diagnosis of a critical illness a person has to survive for a period calledSurvival Period,which is normally 30 days, before a claim can be lodged. But there are exceptions, where survival period does not apply.
  7. The premium for critical illness policies is normally less than that  of indemnity health insurance of same amount of insurance.So choose for a sufficiently high amount considering the treatment cost and family expenditure.

Read thoroughly and choose wisely.

Remember that, under Section 80D of the Income-tax Act the insured person who takes out the policy can claim for tax deductions up to ₹25,000 for self, spouse and dependent children and up to ₹30,000/- for parents. This is applicable to premium for critical illness insurance as well.

Link to other blogs in the series:

  1. Decoding Insurance
  2. Health Insurance – Decoding Insurance

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