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By Sunil Kadyan
Changing lifestyles and genetic factors are making Indians increasingly fall prey to non-communicable critical illnesses (CI) such as cancer, heart stroke, hypertension, diabetes, etc. A basic health insurance policy may not be sufficient to cover all medical costs, especially in case of CI which require long-term treatment, leading to a huge financial burden.
This financial burden can be supported by a special financial protection plan called ‘Critical Illness Plan’. You should purchase a critical illness plan along with a health insurance plan. It is advisable to buy a critical illness plan at an early age as health risks are less and so a lower insurance premium. The premiums which are paid for a critical illness plan are allowed as a tax deduction under Section 80D.
Working of critical insurance plan
The working of CI plans is different from other health insurance policies. In CI plans, the full sum insured is paid to the policyholder on diagnosis of critical illness. The sum insured may be utilised for treatment, care cost and even can be used to pay off any debts if taken by the insured. CI plans are also known as defined benefit plans as payout is defined and fixed. If an insured holds more than one CI policy from insurers, then all insurers will pay the full sum insured. A health insurance plan on the other hand is an indemnity plan which reimburses the expenses actually incurred.
The number of CI covered by insurers may vary. Generally, insurers cover 10-20 major critical illnesses or even more. Go for a CI plan which covers maximum critical illness. Some common critical illnesses covered are cancer, coronary artery bypass surgery, heart attack, stroke, kidney failure, aorta surgery, heart valve replacement, major organ transplant and paralysis.
How much cover is needed?
The factors considered while arriving an at appropriate sum insured are age, inflation rate, number of CI covered and future financial liabilities. The CI sum insured should not be less than `15 lakh.
While CI plan can be bought as a standalone policy as well as a rider with life and health insurance plans, it is advisable to purchase a separate CI plan. A stand-alone policy offers more flexibility in choosing the sum insured and larger covers compared to riders. The limit on sum insured under a rider is usually the same as the base policy.
If you have a health plan or term insurance of `5 lakh and buy a critical illness rider with it, it is unlikely that the insurer will offer you a sum insured of more than `5 lakh for the add-on cover. The premium would be more for standalone CI plan as compared to rider. The second mistake is buying a CI plan with low sum insured. The third mistake is when one purchases this plan at a higher age which increases the premium as well as results in a limit on maximum sum insured.
Waiting and survival period clause
The standard initial waiting period under fresh policy is 90 days. The insured person needs to survive for 30 successive days after the diagnosis of the critical illness in order to make the claim. The policy terminates once the compensation is paid under the policy. As the policy holder’s family grows and income increases, the CI sum insured should also be increased accordingly. The insured can purchase separate CI policy with an increased sum insured.
The writer is assistant professor, Amity School of Insurance Banking & Actuarial Science, Amity University
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