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Assume that your close friend suddenly suffers a major heart attack and he needs to be operated. He has a health insurance, but this is insufficient to cover the treatment cost. In addition to the operation cost, his family will also have to incur the hospitalization bills and other related medical expenses. While bearing such a huge expense may be difficult, your friend’s family can arrange for the funds by liquidating some investments. However, this will harm his financial planning for the future. Then what can be done to meet the expenses without harming the returns from your investments? In such a situation, a critical illness insurance policy comes in handy.
Why a critical insurance policy when you already have a health insurance policy?
A critical illness insurance plan covers major illnesses like cancer, heart attack, coma, stroke, paralysis among others. When you contract a critical illness, the loss is not simply restricted to the expenses you incur. It is much more severe as it can hamper your capacity to earn resulting in a loss of income. You may also end up with total or partial disability causing a change in your lifestyle. The insurance company pays a lumpsum amount to the insured if he is diagnosed with any such critical illness which is covered under the policy, irrespective of whether he is hospitalized or not. A health insurance policy usually has several sub-limits and restrictions, which sometimes will not even compensate you completely for the expenses you incur. In such a case a lumpsum payment gives you the freedom to spend it as you wish. Hence the importance of a critical illness policy cannot be over-emphasised.
How to pick the right policy?
While choosing a critical illness policy, choose a policy which covers the maximum number of illnesses. If there is a family history of a particular illness, make sure the policy covers this illness, as you are more susceptible to getting this. Also consider the extra benefits and features which policies offer. When you evaluate a cover size, don’t forget to consider the average cost of treating major critical illnesses, taking into account the inflation factor. Understand the exclusions under the policy and choose a policy with a high renewal age limit, as you are more likely to fall sick when you grow old. Last, but definitely by no means the least, choose a policy with a comparatively lower premium for similar benefits offered by a player with a higher premium.
Salient Features of a Critical Illness Policy:
Critical illness policies have different options of Sum Assured, ranging from as low as Rs. 1 lakh to Rs. 50 lakh (Bajaj Allianz policy). The policy is generally required to be renewed every year by paying the annual premium. However, companies like ICICI Lombard offer policies for 3 and 5 years as well. As discussed earlier, the mode of compensation by the insurer will be a lumpsum, when the illness is diagnosed, even if you are not hospitalized. Once the benefit is paid, the policy usually ceases to exist.
Most companies specify a survival period of 30 days after the illness is first diagnosed and makes the payment only after this period. Only ICICI Lombard’s policy does not have this waiting period and you can receive the benefit immediately on diagnosis. There is also a waiting period of 90 days from the inception of the policy, during which period the illnesses are not covered. This period is 60 days for Bharti Axa critical illness policy. In addition to the lumpsum payment, some policies offer periodic payments, reimbursement of hospitalization expenses, etc.
Some companies like Reliance General, Max Bupa and Bharti Axa offer a renewal bonus or a discount in premium while the policy is renewed every year. This can bode well for you, as an increase in Sum Assured makes you eligible for a higher compensation. ICICI Lombard also compensates death and permanent total disablement due to accidents under this policy.
While medical check-up is not needed by most companies, there are a few policies which require a medical check-up if the insured is above a particular age limit (usually 46 years). Another feature of the critical illness policy is that pre-existing diseases are not covered under the ambit of the critical illnesses specified in the policy document. Only policies by Bharti Axa and Max Bupa cover pre-existing diseases, but that too, after 48 months of the policy’s original start date. You get a tax benefit under Sec 80D of the Income Tax Act for the premium you pay for your critical illness cover.
Should you take a standalone critical illness policy or opt for a critical illness rider?
Critical illness covers are available both as standalone policies and as riders along with life or health insurance policies. Generally while this policy is taken as a rider or as an add-on to the existing health insurance policy, it may be difficult for you to increase the Sum Assured limit at the same premium levels. The Sum Assured in such a case is generally 50% or 100% of the basic Sum Assured.
The comprehensive health policy by Bharti Axa can work out to be an inexpensive option for you, as the benefits you get for the premium paid is high. While features of both a standalone plan and a rider are more or less the same, a standalone plan offers greater flexibility in choosing the Sum Assured limit.
Which policy should you buy and which should be avoided?
We have analysed critical illness insurance products of 9 companies on the basis of several parameters. Of the companies we analysed, it is best to avoid Star Health and Tata AIG due to the exorbitantly high premium levels. The premium on the critical illness policy by ICICI Lombard also is relatively high; however, this policy covers accidental death and disablement benefits which will be beneficial to you if you are frequently exposed to accidental risks. You can also avoid the critical illness policy by National Insurance Company as the number of illnesses covered is low compared to policies by other companies.
If you do not mind a low Sum Assured, you can opt for the comprehensive health policy by Bharti AXA, which brings with it a host of benefits. Other policies which can be considered on the back of low premiums and marginal benefits are Reliance General and Max Bupa. If you are not keen on the extra benefits which some policies offer, you can also choose HDFC Ergo and Bajaj Allianz policies as premium is low.
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