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Can you please help me understand the difference between life insurance and term insurance?

—Ramesh

 

Life insurance is an overarching term used for various plans offered by life insurers. This could include both saving as well as protection plans. Endowment plans, unit-linked insurance policies (Ulips) and term insurance are collectively referred to as life insurance plans. Endowment and Ulip plans offer a return on invested premium, besides an in-built death benefit coverage. Term plans are protection plans. They do not offer any savings element. The sum insured is payable only in case of death. Term plans are substantially cheaper than other life insurance plans. You should first buy a term plan before considering other life insurance plans.

 

I have taken an insurance policy of 50 lakh with critical illness benefit. Is this rider beneficial in the long term, or should I buy a new health insurance policy by closing the critical illness rider of the said policy?

—G. Trinath

 

Critical illness plans are not a substitute for traditional health insurance plans and vice-versa. The critical illness plan associated with term insurance will get triggered when the policyholder gets diagnosed with the specified critical illness. Then, the policy will pay the sum assured of the plan. Hospitalization is not a prerequisite for the policy to be triggered. Even bills and receipts are not required to make a claim.

Traditional health insurance plans cover hospitalization expenses for all illnesses, except specified exclusions. They get triggered when the policyholder is hospitalized for more than 24 hours and reimburse the actual expenses incurred on medical expenses for hospitalization. Original bills and receipts are required to make a claim.

Traditional health insurance plans are meant to cover relatively frequent and more prevalent illnesses. This could include dengue fever, cataract, a heart surgery or a cancer treatment. The critical illness plan is meant to cover only rare illnesses that cause significant financial impact. Critical illnesses such as cancer or brain stroke lead to high cash outage. Apart from hospitalization, patients incur substantial rehabilitation expenses, lifestyle modifications and a loss in income earning capacity. A critical illness plan helps mitigate some part of this huge cash outflow.

A traditional hospitalization insurance plan is a must-have. Critical illness plan is a supplementary coverage.

Abhishek Bondia is principal officer and managing director, SecureNow.in.

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