Critical Illness InsuranceIt could cost lakhs of rupees to treat critical illnesses, and treatments could wipe out a chunk of your savings. That’s why you need a health insurance plan that covers critical illnesses. You could go for a critical illness plan or a critical illness rider that comes along with a life insurance policy. What’s this all about? What does it cover? Do you get any tax benefits? We answer all these questions and more.

What is it?

A critical illness plan is a health plan that will provide you with a sum assured in case you are diagnosed with any critical illness like cancer, heart diseases, or liver diseases. This lump sum is paid out regardless of what costs you incurred for treatment of the disease. Some insurance companies also provide the option of choosing a lump sum and a percentage of the lump sum being paid out every year for the next few years. For example, The Max Bupa CritiCare policy gives the policyholder the option to choose a sum insured that is payable as lump sum plus additional 10% of the sum insured payable each year for subsequent five years. This plan covers about 20 critical illnesses.

A critical illness rider is an add-on to an insurance policy. The cover provided by riders are usually much lower than those provided by a critical illness plan.

This is the same as Mediclaim?

No. A critical illness plan is a fixed benefit plan. The benefits that the policyholder will get is fixed before the policyholder buys the policy. However, a Mediclaim policy is a hospitalisation policy where medical expenses of the policyholder will be reimbursed. The cover for Mediclaim policies is usually much lower when compared to health insurance plans.

What does a critical illness plan offer?

While critical illness plans cover a wide variety of critical illnesses, critical illness riders might cover only a few critical illnesses. Usually, insurance companies cover more than 30 critical illnesses including cancer, stroke and lung disease. The sum assured for a critical illness plan can be anywhere between Rs 1 lakh and Rs 20 lakh.

How much would you need?

If you are a single earning member of your family and your family has a history of critical illnesses, a cover of more than Rs 10 lakh will be required. If both you and your spouse are earning, a basic cover of Rs 5-6 lakh should be considered.

How long do you need to wait?

Most critical illness plans have a waiting period of 30 days before you can make a claim. This 30-day period will start after the critical illness is diagnosed.  The policyholder has to survive in those 30 days to make claims. Most policies also have a generic waiting period of 30 to 90 days after buying the policy. If the policyholder is diagnosed with a critical illness during this waiting period, the policyholder cannot make claims.

Where to buy?

You can get a critical illness plan from a health insurance company and a critical illness rider from a life insurance company or a health insurance company. In case you choose a rider, you might have to check the conditions. In some policies, the life insurance will continue even after the critical illness rider is used while in some other policies, the life insurance policy will get terminated after the critical illness rider is used.  

What’s the major difference between a plan and a rider?

Usually, when you buy a critical illness rider along with your life insurance policy, the premium will remain the same throughout the policy term. Also, the sum assured will be restricted to up to 50% of the base plan’s sum assured. This means that the cover will be low.

However, for a critical illness plan, the term will be mostly a year and the premium will change significantly every time you renew your critical illness plan. As the policyholder grows older, the premium will be higher. But the sum assured will be higher.

Are there any tax benefits?

Just like a health insurance policy, you can get tax deductions for your critical illness plan under Section 80D of the Income Tax Act. As per the recent budget, individuals under 60 years can claim Rs 25,000 while senior citizens can claim up to Rs 50,000. However, individuals can claim on behalf of their parents if the policy is purchased in the parent’s name.

It is very important to understand the exclusions under the policy before you purchase the policy. Some policies may not cover certain critical illnesses. The policy tenure and waiting period are also other important factors to consider.

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Staff Writer

This article is written by RupeeIQ editorial staff.