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Factor in EMIs and treatment costs while deciding your critical illness coverage

A critical illness policy must cover your hospitalisation costs, EMIs and lifestyle expenses, as your income may stop for a few years

March 10, 2021 / 10:44 AM IST

The number of people being infected with critical illnesses has increased manifold in the last decade, with the most prominent reasons being pollution, stress, unhealthy food and sedentary lifestyle. While it is pivotal to take all precautionary measures – exercising regularly and eating healthy food – to prevent such diseases, it is equally important to stay financially protected in case you fall prey to any serious illness.

Rising cost of treatment

If you closely evaluate and single out the cost for treatments of critical illnesses, you will see that the cost can go up to Rs 20-30 lakh if you choose to take treatment at reputed private hospitals. And in case you choose to go for a Robotic surgery – which is becoming quite popular in India – the cost of treatment may further increase by Rs 5-7 Lakh. Over and above the treatment cost, there are many other expenses too that you may incur to ensure your family maintains the same lifestyle. Once you suffer from a critical illness, you might have to stop working or at least cut down on the working hours, considering your health conditions. This means there will be loss of regular income for a significant time period, putting dependents under tremendous financial trauma.

Considering all these factors, buying a critical illness insurance cover has become absolutely essential for all – irrespective of their age and gender. Under a critical illness plan, the insurance company pays the policyholder the entire insured amount as a lump-sum, regardless of the hospitalisation bill upon diagnosis of a critical illness. The only condition is that the critical illness must be covered under the policy. The lump-sum amount received can be used for paying off hospital bills, home loan instalments, premiums for investments, day-to-day expenses and other expenditure that you may incur due to loss of income. Under a CI plan, there is usually a waiting/survival period of 30 days, i.e., if the policyholder survives 30 days after being diagnosed with the illness, the sum assured is paid. However, before you rush to buy a critical illness plan, it is important to first sit and evaluate how much coverage/sum assured you would really need to take care of all the possible expenses.

Getting the numbers right

In order to evaluate how much coverage you need, the foremost thing you need to do is calculate the present incomes and expenses of your family. Atul Rathi, a resident of Delhi, is planning to buy a critical illness cover. He lives in his recently bought house with his homemaker wife and two kids. The monthly household expenses of Atul and his family are Rs 30,000, apart from a home loan EMI of Rs 25,000.

Now, Atul will evaluate the total expenses his family would incur in the next three years as 2-3 years is the minimum time period that one takes to fully recover from a critical illness. The total expenses of his family are Rs 55,000 per month, which for three years will amount to approximately Rs 20 lakh. Atul further needs to add the cost of treatment for the critical illness, which will be Rs 20 lakh on average. The total expenses now amount to Rs 40 lakh. One important factor that Atul needs to keep in mind while calculating the approximate coverage needed is inflation. While this Rs 40 Lakh amount may seem enough today, the same amount not be sufficient in the next 5-7 years, considering the high inflation rate.

To beat inflation, the total expenses need to be multiplied by 1.5 – the minimum rate of inflation we expect in the coming years. In Atul’s case, by implementing the inflation formula, the total expenses would be Rs 60 Lakh. So now, when looking for a critical illness cover, Atul must buy a plan with at least Rs 60 Lakh sum assured to smoothly take care of the inured expenses, which include treatment cost, paying daily house-hold expenses and monthly EMI.

Choose the right combination

You can choose to buy a critical illness cover as an add-on with your health insurance policy and term insurance plan as all these three work in a different manner and address different purposes. Your health insurance plan only pays you for the hospitalisation expenses –pre and post-hospitalisation – up to the sum insured. For instance, let’s say you have a health insurance plan with Rs 10 lakh sum insured, and upon hospitalisation you get a bill for Rs 2.5 lakh. Now, your insurer will only pay the hospitalisation charges, i.e., Rs 2.5 Lakh out of the total sum insured of Rs 10 Lakh. A term plan pays the dependents the entire sum assured only on the death of the policyholder. If the life insured survives the policy term, there is no maturity benefit. Considering the distinguished benefits of health insurance, critical illness and term insurance plan, it is always advisable to have a combination of all these three plans.

Amit Chhabra
first published: Mar 10, 2021 10:07 am