What survival period means for your critical illness plans

Primarily there are two ways to get adequate CI cover—a CI rider with a term plan and a stand-alone CI policy by a health insurer.
Primarily there are two ways to get adequate CI cover—a CI rider with a term plan and a stand-alone CI policy by a health insurer.

Summary

Experts say it is crucial to note the number of critical illnesses covered by a health policy.

Health insurance helps a policyholder take care of any sudden or even planned hospitalization expenses. But it may not be of much help if prolonged hospitalization due to a critical ailment leads to loss of job and income. The family may struggle to meet daily living expenses, in addition to the mounting healthcare costs. This is precisely where critical illness (CI) policies or riders can help. In such cases, the insurance company gives a lump sum payout if the policyholder is diagnosed with a CI, unlike in the case of indemnity-based insurance which only covers hospital expenses within the coverage limit. The lump sum payout in critical illness policies can be used for any purpose.

There are two different ways to insure oneself against CIs—a rider offered by life insurance companies along with the main policy or even a stand-alone policy or rider offered by health insurance companies. Yet, many people buy such riders or policies without understanding their nuances. Take for example the survival period clause. Having a policy does not mean the policyholder will get the money on day 1 itself after she gets diagnosed with a CI. She must survive for a few days before the claim is cleared. If a policyholder dies during the survival period, she will not be eligible for the claim.

“Generally, insurance companies offer a survival period of 30 days in their policies. Very few insurers offer an option to reduce it. A couple of insurers such as Bajaj Allianz General Insurance levies 5% loading in premium to reduce it from 30 days to 15 days and additional 5-10% to reduce it to 7 and zero," says Nisha Sanghavi, a certified financial planner and co-founder of Promore Fintech.

Also, there is a waiting period of 90-180 days during which the policyholder will not be eligible to make any claim.

Another important parameter to gauge the usefulness of a policy is the number of CIs it covers. A few insurers only cover 10-20 diseases while others may include up to 60 or more. One may feel that more is better in such cases but it is a misconception. “An insurance company having 60 or more critical illnesses may divide cancer into various stages and count it separately. Another insurer may just have 25 illnesses in the policy but can count all cancer types as one," says Kalpesh Chavan, senior vice president & product head at elephant.in (Alliance Insurance Brokers).

Moreover, some illnesses in the list could very well be uncommon. “When we spoke to a seasoned actuary about the significance of the number of illnesses, we understood that the top 6 illnesses account for more than 90% of critical illness claims. Further, when you look beyond the top 10 illnesses listed in any plan—the claims are rare. So, a majority of these long lists are often filled up with rare medical conditions, with very low probability of their occurring," says Mahavir Chopra, founder, Beshak.org.

Avoid going by numbers and read the fine print. “It is better to reach out to an insurance advisor. If not, the second-best option could be opting for a policy having 25-30 critical illnesses," says Chavan.

Term insurance with CI rider versus a stand-alone CI policy

Primarily there are two ways to get adequate CI cover—a CI rider with a term plan and a stand-alone CI policy by a health insurer. The first is convenient as it does not require additional paperwork or medical tests. However, a rider’s premium cannot be more than the base premium of the term insurance plan. It means the coverage amount will be limited and cannot be more than the term insurance cover.

Moreover, in many of the CIs mentioned in the plan, only advanced stages are covered. For example, a rider in a life insurance policy may not give you the payout in case of stage 1 cancer.

You need to check the type of the rider also. There are two types. “If it is a comprehensive rider, it means the rider coverage will be in addition to the coverage of the base policy. However, in case of an accelerated rider, the cover is part of the base cover you buy. Say you buy this rider with term insurance. If there is a claim, this amount will be paid to you, by reducing your base term insurance cover," cautions Chopra.

When it comes to stand-alone CI plans by health insurers, the coverage net is wider and is long term in nature. The rider in a life insurance plan will lapse after the policy term is over. But one can renew a health insurance CI policy for the lifetime.

 

(Graphic: Mint)
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(Graphic: Mint)

What about the premium? A stand-alone policy will be more expensive than the rider premium for the same amount of coverage. Moreover, the premiums will keep increasing every few years. The rider in a term plan will be relatively cheaper and the premium amount will get locked.

“Ideally, a CI rider with a term plan is a better option but if a policyholder is eligible for a low amount of term cover, the CI cover will be even lesser. In that case, a stand-alone CI policy will be a better option for adequate CI cover," says Sanghavi.

It is important to note that a rider cannot be taken as an add-on during policy renewal in term insurance. If someone has already bought a term cover and is adequately insured, she will have no option but to opt for the stand-alone CI policy. “A rider can be bought only when you are buying a new term insurance policy. If we get clients who are under-insured, we get them to buy a new term plan along with a CI rider, otherwise we go for a stand-alone CI policy," she says.

Even among stand-alone CI policies, it is important to compare the number of survival days, number of CIs and percentage of sum insured amount given for minor CIs.

CI policies—be that a rider or a stand-alone one—end right after you make a claim for a CI. You can not renew it. A few stand-alone policies let the cover continue if the claim is related to a minor CI.

(Graphic: Mint)
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(Graphic: Mint)

What more is needed

Chavan says that the industry lacks women-specific critical illness policies. “Diseases such as cardiovascular disease are uncommon in women but breast cancer is common. Why should they pay a premium for diseases which they may not get? A customized women-specific plan can be cost-effective for them," says Chavan.

Second, the survival period in CI policies needs to be reduced. “All insurers must give an option to reduce the survival period even if it involves additional premium payment," says Sanghavi.

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