Critical illnesses bring along financial upheaval as well and, therefore, it is essential that you properly insure yourself against them
In the 2 minutes you will take to read this article, 3 people will die of cancer in India.
By the time the day is over, 900 people under the age of 30 would have succumbed to heart disease.
By the time the year is over, there will have been nearly 50,000 deaths caused by the non-availability of vital organs for major transplants.
Besides the emotional turmoil caused by these life changing critical illnesses, there is financial upheaval as well.
Herceptin, a medicine that treats breast cancer (the largest killer of Indian women in 2014), costs between ₹ 75,000 and ₹ 1 lakh per vial. A patient usually requires 16 vials.
A single valve replacement surgery for heart disease costs between ₹ 1 lakh and ₹ 3.5 lakh.
A transplant needed to treat kidney disease, the 12th leading cause of death in the world, costs ₹ 4 lakh.
Critical illnesses are not a distant possibility, but a daunting reality. Treatment and care for these diseases is not easy to arrange, and therefore, it is essential that you properly insure yourself against them.
To find yourself the most suitable plan, sequentially answer each of the questions below:
1. I have a Mediclaim policy. Isn’t that enough?
Not necessarily. Within the non-life segment of insurance, health (mediclaim) and critical illnesses fall under different categories.
Health insurance is an ‘indemnity’ based insurance wherein your insurance company reimburses you for the actual cost of hospitalisation you have incurred. This is usually the type of health insurance employers offer their employees.
By contrast, critical illness (CI) insurance is a ‘fixed benefit’ based insurance which does not depend on hospitalisation bills to compensate policy holders. Upon diagnosis of any of the critical illnesses covered by your policy at a specified severity, you receive a lump sum pay-out.
In case you are diagnosed with a critical illness, it is likely that you may be unable to work for a while. Thus, a generous critical illness (CI) rider (on a life insurance policy) can function as an effective income replacement option offering a lump sum critical illness benefit with continuing coverage of the death benefit component. Investing the lump sum payout will ensure your financial foresight results in guaranteed monthly income despite suffering from a critical illness, as well as enough funds for other obligations like the education of your children or paying off loans.
Thus, while there is definitely space for a Mediclaim plan in your insurance portfolio, it cannot replace the need for protection against critical illness.
2. I’m convinced. What are my options for protection against critical illnesses?
There are usually two options available:
i. A standalone critical illness policy
The major advantage of this option is that you can choose the cover according to the illnesses you are prone to contract, based on your lifestyle and family’s medical history. The major disadvantage is that with a CI policy, every few years—usually three—the premium may be revised based on medical check-ups the insurers may ask you to undergo. If your health has taken a downturn, your premium may shoot up.
ii. A critical illness rider with a life insurance policy
The major advantage here is that it is much more cost effective and convenient as it comes attached with a life insurance policy and does not demand high premiums. Additionally, the premium remains the same throughout the policy. The disadvantage used to be that the cover was not as comprehensive as a standalone policy, but there are now a lot of plans available in the market that are even more extensive than most standalone policies, and also cheaper.
3. Tell me more about a comprehensive life insurance policy.
A number of life insurance products offers a CI benefit or rider, but none as comprehensively and cost effectively as a term plan. Buying a term insurance policy is the simplest and cheapest way to secure your family’s finances against unfortunate eventualities like death, disability, or critical illnesses. Buying the policy at a young age can help you secure coverage of crores of rupees for less than ₹ 55 per day.
4. I’m convinced. Which term plan would best protect me against critical illnesses?
Choosing the perfect term plan to give you and your family 360° protection isn’t a decision one should take lightly. Additionally, it’s not an easy decision as there are a number of factors you must consider before you decide. However, it is prudent to look beyond the premium when making this decision. After all, paying more today will be worth it if the policy offers assured financial and emotional security to you and your family.
Make sure you consider every one of the criteria explained below:
• Coverage options
Almost all insurance companies offer flexible coverage options that include riders for terminal illnesses, permanent disability, accidental death, and critical illnesses. However, most insurers restrict the CI rider to very few illnesses/conditions. Thus, you need to opt for a plan that is more extensive and covers a wide range of critical illnesses. You should aim to get cover against heart and artery diseases, brain and nervous system complications, as well as major organ care.
Additionally, with women matching men in all aspects of life, a one-size-fits-all plan may leave the family at risk in the event of unfortunate demise of the woman of the house. You thus need a plan that offers women specific benefits. Ideally, it should cover female organ cancers such as breast cancer and cervical cancer, and should also offer special/discounted premium rates to women.
• No increase in premium
Very often, with long term life insurance plans and health insurance plans alike, insurers revise premiums periodically, increasing it slowly but steadily throughout the policy period. This can be detrimental down the line when the premium shoots up suddenly following a medical check-up, so ensure that the policy you choose does not review premium at any point during the period of the policy. This ensures that the only thing increasing is your income, and not your insurance premium.
• The clincher - tax savings
One of the added advantages of getting a term plan with a CI rider is that it reduces your tax liability.
For example, say you buy a standalone critical illness policy, you get tax benefits only u/s 80(D) wherein the maximum limit is ₹ 25,000 + ₹ 5,000 extra for senior citizens.
However, let’s say you buy a term plan with a critical illness rider. In this case you get tax benefits u/s 80 (C) for the term plan since it’s a life insurance product, for which the deduction limit is ₹ 1.5 lakh and you get benefits u/s 80 (D) up to ₹ 25,000 for the critical illness rider. So if you are paying a premium of ₹ 50,000 for the term plan, it gets deducted u/s 80(C) and ₹ 25,000 for the CI rider which gets deducted u/s 80(D), thus reducing your tax liability even further.
5. But, what if I already have a term plan?
As per an IRDAI report, penetration of life insurance in India fell from 3.40 in 2011 to 3.17 in 2012. So even if you do have a term plan, chances are you are underinsured and don’t know it. Also, as explained above, unless you have a critical illness rider, or a standalone critical illness policy, you are still vulnerable to the financial mayhem such situations can cause.
So, do a check. The sum assured for a robust term insurance plan should be at least 15 times your current annual salary.
Let’s say your salary is ₹ 10 lakh per annum. In this case, you should be covered up to at least ₹ 1.5 crore. If your policy covers you for just ₹ 1 crore, it’s essential you immediately buy a term plan for the difference amount, i.e. ₹ 50 lakh with a critical illness rider. This will ensure that your family is comprehensively protected.
Thus, the ideal term plan would be one that combines the benefit of a standalone life insurance policy (comprehensive cover) with the benefit of a CI rider (affordability and convenience). You should also look for an insurance company with a high claim settlement ratio so you are assured that your future and that of your family is in good hands.
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