Why you should have a critical illness policy?

Steven FernandesMr. Desai (52) was admitted with severe chest pain and initial symptoms indicated that there is a possibility of arterial blockage. After a series of tests, the doctors suggested “Coronary artery bypass surgery” as the arteries were blocked and this seemed to be the most viable solution to contain the damage. Fortunately Mr. Desai had a mediclaim cover of Rs. 5 lakhs and the entire hospital bill of Rs. 4 lakhs was borne by the insurance company. Let’s look at another example of Mr. Ramesh (51). Mr. Ramesh was diagnosed with a similar problem and he too was recommended Coronary artery bypass surgery. Mr. Ramesh fortunately had 2 health related policies. He had taken a mediclaim cover of Rs. 10 lakhs and a separate critical illness policy of Rs. 10 lakhs. His entire hospitalisation expenses were taken care of by his mediclaim policy. After a month when Mr. Ramesh recovered he applied for critical illness claim of Rs. 10 lakhs. Since Ramesh had no history of heart disease his mediclaim policy had already taken care of his hospitalisation expenses but because he had a separate Critical illness policy, he was entitled to claim the full sum assured of the policy as the illness was listed among the several critical illnesses in the policy document. The intention of the above examples is to give you an idea of how Critical illness policies and mediclaim policies are different. Then arises a question as to what is more important – A mediclaim policy or a critical illness policy?Mediclaim policies cover hospitalisation expenses related to illnesses or surgeries as well as select listed day care surgeries and should be the primary health cover one should buy. Whereas critical illness policies pay a lumpsum benefit as per the sum assured chosen and the compensation is not related to the hospitalisation expenses at all. In India and globally, the two major critical illnesses which are common are related to heart disease and cancer. Most people affected by critical illnesses find it difficult to recover completely and for most, recovery is a long process which may even force one to give up a regular job. Many a time the hospitalisation costs far exceed the mediclaim covers that most have. The lumpsum amount received from the critical illness claim can reduce the financial burden to some extent. Therefore it makes sense to have a critical illness policy along with a comprehensive mediclaim cover. How much Sum Assured should one take?There is no such standard rule to decide the sum assured but one should take the cover as per one’s age, income and standard of living. But considering the fact that it’s a one-time benefit that’s paid out on the insured surviving the critical illness for 30 days from date of diagnosis, it makes sense to cover oneself for at least Rs. 10 lakh for people below 35 years of age. For higher age groups and falling in higher income brackets, the cover should be certainly higher than Rs. 10 lakhs. Like mediclaim, the critical illness policy premiums are fixed for a particular age slab eg. 31 to 35 years, 36 to 40 years and so on. The premiums increase with change in age slab upwards. For example the premium for a 35 year old person opting for a Rs. 20 Lakh cover from Religare health will cost him Rs. 9035 while that of Apollo Munich will cost Rs. 8588. The premium for similar cover at the age of 40 years will be Rs. 14679 for Religare and Rs. 13168 for Apollo. Some life insurance companies like HDFC Standard life also offer a standalone Cancer policy which only covers Cancer related claims, hence the premium for this policy is low as compared to comprehensive critical illness policies. A Rs. 10 lakh sum assured for a 35 year old person will cost Rs. 2782. Which company should you take your policy from?It’s advisable to take critical illness policy from Non-Life insurance companies due to the following reasons. 1. Most Non-life insurance companies are offering lifetime renewal of the policy, once one becomes a policyholder, while Life insurance companies offer this cover for a particular term like 20 to 30 years. The cover ceasing age in life insurance companies does not extend beyond 75 years. 2. The list of covered critical illnesses are also more in non-life insurance companies. 3. The waiting period for taking a claim in the first year is 90 days in non-life companies as compared to most life insurance companies which have a waiting period of 6 months. While the number of covered critical illness vary from insurer to insurer, most offer ‘Second opinion service’ – one per policy year. The biggest issue with Critical illness policies are in understanding the exact technical terms under which one becomes eligible to take a claim. Therefore consider all the factors such as number of critical illnesses covered, lifetime renewal facility, competitive premiums and claims procedure before deciding on the right policy. Steven is a member of The Financial Planners’ Guild , India (FPGI). FPGI is an association of Practicing Certified Financial Planners to create awareness about Financial Planning among the public, promote professional excellence and ensure high quality practice standards.