Here's why buying critical illness insurance is important

In an interview to CNBC-TV18, personal finance expert, Sumeet Vaid of Ffreedom Financial Planners explained the importance of buying a critical illness insurance plan.

Below is the verbatim transcript of Vaid's interview with CNBC-TV18. Q: How does critical illness insurance work and how much cover should an individual have? A: Critical illness insurance is very important insurance cover and most of the time it is ignored. We do talk about life insurance and we do talk about health insurance but critical illness insurances are most often ignored. Why your nominee must know about your life insurance plan Critical illness insurance covers those kinds of illnesses which are critical in nature and the best part about this insurance is it covers pre hospitalisation and post hospitalisation cover, for example we had an actual case of a family with whom we dealt recently. The concerned person suffered a stroke and as a result of which he was rushed to the hospital and timely intervention from hospital staff saved his life and he had medical insurance, which was good. However, after some days he had a paralytic attack close to 30 percent of the right side of his body. As per doctors that will take one-and-a-half to two years to recover. He had hospitalisation cover so his hospital was taken care of. However, paralytic stroke might take one-one-and-a-half-two years of medication to improve on and he cannot stay in hospital for that long so he had to go back to his home. As he went back to his home because of this paralytic attack he cannot work and so there is no income and at the same point of time medical expenses have gone up. Also Read: 3 reasons why you should opt for maternity insurance Many of the families get derailed because of problems like this and this is an exact reason why one should have critical illness insurance plan. Adequacy of critical illness insurance depends upon the age bracket, depends upon the risk profile, depends upon the profession somebody is in. However, as a thumb rule minimum Rs 5 lakh is recommended for critical illness insurance and rest all calculation can be based on each and every separate individual and family. _PAGEBREAK_ Caller Q: Which mutual fund to invest in – is it net asset value (NAV), is it an expense ratio or the average annual total return? A: When you choose to invest in any of the mutual fund before getting into the technicalities of which mutual fund family, which mutual fund schemes; first and foremost what you need to decide on what the purpose is for this investment to be made, for example what is the goal. Since you are sitting on a large corpus and for you let’s articulate a goal of wealth maximisation and as a part of wealth maximisation you are looking at a return of 12.5-15 percent over next five years and for that you need an asset allocation strategy. How much should go into equity, how much should go into debt, how much should go into commodities/gold. Once you get the asset allocation right you need to figure out which kind of investments or which kind of mutual funds will help them get asset allocation. In case of equity, which are those equity mutual fund families, which you need to take and the word I am articulating is equity mutual fund family, for example ICICI Prudential Asset Management Scheme is one of the better performing mutual fund family over the last three-four years and consistently they have been doing well. Their core strategy, when they try and manage their fund is they do not keep their expense ratios very high because they want to give best possible return to their end customers also their servicing is good and also consistency of performance in form of what they say they do. So, there are three schemes ICICI Prudential Discovery Fund, ICICI Prudential Dynamic Fund, ICICI Prudential Focused Bluechip Equity. These three equity schemes have been doing very well over the last period of three years. Therefore, my recommendation will be for wealth maximisation goal. If you are looking at equity, look at creating equity portfolio between ICICI Prudential Focused Bluechip, which is a largecap equity scheme along with ICICI Prudential Dynamic Scheme, which is equity and cash and also ICICI Prudential Discovery, which is a value. Now you can create a combination of that and also couple it with some of the other mutual fund families like HDFC Mutual Fund or DSP Blackrock. The core and most important thing whenever you have to choose equity mutual fund or for that matter any mutual fund is to understand what is the goal, what is the tenure of that goal which you are going to get. Get your asset allocation right and choose a fund family, which is consistent to what it says, which has been given good performance over a period of last three-four years and whose expense ratio strategies are very transparent, very customer friendly and as I gave the example one of the better fund families these days is ICICI Prudential Mutual Fund and their are three equity funds especially are doing very well, ICICI Prudential Discovery, ICICI Prudential Dynamic and ICICI Prudential Focused Bluechip.