Tips for Buying a Critical Illness Insurance Plan

A critical Illness is a life-threatening disease that disables you from performing your normal occupation. Various studies have revealed that the incidence of Critical Illnesses have increased manifold. Reasons are many, and these include stress, a sedentary lifestyle, junk food, lack of physical exercise and so on. 

Nevertheless the fact is that along with the incidence rates, also increasing are the costs of treatment. It makes eminent sense to purchase a Critical Illness (CI) cover from an Insurance Company.

Which Illnesses are Critical

In India, Critical Illness covers are sold as stand-alone policies by General Insurance companies and as add-on covers (riders) by Insurance companies. This means that if you wish to buy a Critical Illness cover from a life company, you must have an existing life policy with them.  Most companies (Life or General) cover at least the top 6 Critical Illnesses:

1. First Heart Attack
2. Stroke (Cardio Vascular Accident or CVA)
3. Cancer
4. Kidney Failure
5. Major Organ Transplant
6. Heart By-pass Surgery

Several companies cover more illnesses in varying numbers, even up to 12. They add Alzheimer’s, Burns, specific forms of cancer and so on. Premiums increase based on the number of illnesses covered. While you are the best judge for your requirements, our view is that the first 6 are enough.

Lump Sum or Accelerated

Critical Illness covers are usually fixed benefit covers which means that they pay out a fixed amount on diagnosis, irrespective of the actual expenditure incurred. General Insurance companies follow the lump sum mechanism. However, life companies tend to divide Critical Illness riders into 2 types:

Lump sum Critical Illness Rider

This is the normal mechanism, where on diagnosis, the fixed cover amount is paid out.

Accelerated Critical Illness Rider

Under this method, the fixed cover amount is paid out as above, however this amount is reduced from the total life cover on death or maturity.

For Example

Let us have a life policy of 1,00,000 life cover with a Critical Illness rider of 50,000.

1. On the diagnosis of a mentioned Critical Illness, if you have a lump sum rider, you will immediately be paid Rs 50,000. The Critical Illness rider is extinguished, the policy continues as usual, and on death or maturity, Rs 1,00,000 will be paid out.
2. On the other hand, if you have an accelerated rider, you will immediately be paid Rs 50,000. The Critical Illness rider is extinguished, the policy continues as usual, and on death or maturity, the balance 50,000 will be paid out.

It is obvious that Accelerated Critical Illness riders are cheaper. 

Our View

We prefer comprehensive coverage hence would advise buying a Critical Illness policy from a General Insurance Company or a lump sum Critical Illness rider from Insurance Company.

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