Critical Illness Cover (Part 1)

Sun 29 May 2016 09:03:00 UTC

critical illness

Having posted on motor and life insurance before, today we enter the health insurance sector, beginning with critical illness cover. As it is an extensive topic, this topic will be split into multiple parts. In part -1 of the series, we set the scene and cover the basics of critical illness policy before we get into more details. In part 2, we talk about the various options for buying critical illness covers and their financial viability and benefits.

What is Critical Illness?

Imagine you are hospitalized with a massive heart attack and your family is told by the doctor that you need emergency bypass surgery.

You have been prudent and have already invested in a health insurance or a mediclaim policy, which you hoped would pay for this treatment. Unfortunately, the operation will cost upwards of ₹ 5 lakhs + hospitalization bills, which includes room rent, medicines, tests, etc. This is more than what your typical mediclaim policy would pay for and now your family is faced with a financial problem to compound their mental agony.

There are many serious illnesses and life threatening health conditions like the example above, which adversely affect the health of an individual. Apart from health, day-to-day routine activities like going to work are affected, and as a result loss of income causes financial distress. These illnesses and health conditions fall under critical illness category.

In situations like this, you need more than just health insurance cover. Buying a critical illness cover is the best way to alleviate the limitations of your health plan. Due to the ever-increasing cost of medical treatment in the country, an individual would incur prohibitively high treatment costs for these medical conditions, apart from loss of income due to inability to work and hence, insuring against these is essential and highly recommended. A list of most common critical illnesses is given below. The list varies from insurer to insurer from an average of 12 to a maximum of 35 ailments and of course, in general more comprehensive the illness coverage, higher the premium.

  • Heart Ailments ( Cardiac block, arrest, attack ; coronary surgery, aorta surgery, valve replacement)
  • Cancer
  • Deafness
  • Loss of speech
  • Paralysis
  • Viral Hepatitis of specified severity
  • Muscular dystrophy
  • Stroke
  • Multiple sclerosis
  • Kidney Failure (both kidneys)
  • Major Organ transplants ( Like Liver, Pancreas, Heart, etc. )
  • Bacterial meningitis
  • Severe Burns

What is the remedy?

As already mentioned, insuring against critical illness is highly recommended. However, many people tend to sit back after buying a health policy under the mistaken belief that it covers the treatment costs as well. However, a standard health insurance policy only covers the hospitalization expenses, and critical illnesses do not fall under this umbrella. There are policies, which are extensive and cover both, but the premiums for those are prohibitive. In short, Critical illness and health insurance should be treated as two different policies addressing different needs. Hence, there is a distinct need for a separate Critical Illness plan.

What is Critical illness cover?

Critical illness insurance plan, also known as critical illness cover is a policy in which the insurer pays out a tax-free lump sum once the insured individual is diagnosed with a critical illness included in the plan.

The payment is usually made when the individual survives a certain period (typically a month) after confirmation of the diagnosis. However, there are exceptions and some plans do not have this clause. You will also not qualify for benefits if you are diagnosed with critical illness within 90 days of acquiring the policy. Again, the terms and conditions change from insurer to insurer and so it is important to read the policy fine print.

Who should consider critical illness cover?

  • Individuals who do not have sufficient savings or pension to dip into if they become seriously ill.
  • Primary wage earners in the family on whose income the family depends on.
  • Those who have crossed their 40s
  • Those who have a genetic pre-disposition to certain critical illnesses.
  • Those whose terms of employment don’t cover a period of time off from work due to critical illness

Exclusions in Critical Illness Policy

  • Illness due to smoking, tobacco, alcohol or drug abuse
  • Illness occurring due to birth defect or congenital anomaly
  • Critical conditions arising out of complications due to pregnancy and/or childbirth
  • HIV/AIDS infection
  • War, terrorism, civil war, navy or military operations
  • Hormone replacement therapy
  • Medical treatment abroad

What is the difference between a comprehensive health plan and a critical illness plan?

Health insurance or mediclaim is a plan where the policyholder can reimburse medical expenses by producing bills. Cashless facility is also available at network hospitals to facilitate direct settlement of bills by insurance company. The health insurance policy continues regardless of whether a claim has been made or not and can be renewed every year.

On the other hand, the critical illness plan only requires diagnosis and acceptance of the diagnosis by the insurer. The Policyholder receives a lump sum payout, which can be used for his treatment as well as income replacement. However, the plan is terminated once a successful claim has been made. The table below shows the difference between the two plans in detail.


standard health vs critical illness cover

Critical Illness cover is a crucial part of securing yourself and your family, and is often offered as a “rider” or add-on to certain health or term life plans. We will go into these and other fine points in part 2, so watch this space for updates. And, as always, if you have any feedback, inputs or requests, feel free to let us know in the comments!

critical illness