Critical Illness Cover (Part 2)

2016-06-10 14:27:00 UTC

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We discussed the basics of critical illness cover in part 1. In part 2, we discuss how to go about choosing a critical illness cover. Here are some aspects that an individual must carefully evaluate while buying a critical illness insurance cover:

How much Critical illness coverage do you actually need?

Medical treatment costs are increasing exponentially in India. The advent of sophisticated medical electronic equipment, potent drugs and superior treatment methods represents a great leap in medical science, which is certainly making a difference to the lives of several million people.

However, as with all imported equipment and technology, there is a price to be paid and the depreciation in the value of rupee only makes matters worse. As a result, the costs are increasing 15% annually, which means the treatment costs double every five years. Below are the treatment costs for some very common critical illnesses affecting the Indian population:

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Since many of these illnesses affect individuals aged 40 and above, a critical illness cover of ₹ 10 lakhs is certainly recommended beyond age 40, which can be reduced to ₹ 5 lakhs below the age of 40, if there are financial constraints and there is no family history of a specific illness at an early age.

Various options available for CI cover

You can buy a critical illness insurance cover either as a freestanding policy or as a critical illness ‘rider’ (aka add-on) from a general insurance (non-life), a health insurance or from a life insurance company.

Standalone Cover

A freestanding policy provides an individual choice and flexibility in selecting an appropriate cover, in terms of Lump sum assured, number of critical illnesses covered and benefits. Moreover, with a freestanding policy, you do not need to renew your term life or health plans to keep your critical illness policy cover active. However, the policy premium is likely to increase as you grow older and there is usually a step change in premium prices, as you move from 18-34 age bracket to the next.

Buying a critical illness policy from a general insurance company or a health insurance company is usually a better option, as independent critical illness plans of life insurance companies are more complex by comparison and generally have unfavourable terms and conditions attached to them.

Critical Illness riders

The riders on the other hand, can sometimes limit your choices, depending on the policy you choose.

For example, if you have health plan coverage for ₹2 lacs, it is highly unlikely that the insurer will allow you a critical illness cover in excess of that amount and you know that a critical illness cover of ₹2 lacs is not adequate.

There are exceptions though; for example, if you buy a term life plan for ₹50 lacs, it is not likely that you will opt for a critical insurance cover over ₹20 lacs. Some insurers offer you the option of selecting a critical insurance cover between ₹5 lacs to ₹20 lacs in such cases. Term life policies are long term, which means your critical illness cover, will be active for a very long time.

There are exceptions though; for example, if you buy a term life plan for ₹50 lacs, it is not likely that you will opt for a critical insurance cover over ₹20 lacs. Some insurers offer you the option of selecting a critical insurance cover between ₹5 lacs to ₹20 lacs in such cases. Term life policies are long term, which means your critical illness cover, will be active for a very long time.

Please read the policy fine print and consult a physician before buying, as the language used can often be confusing.

CI riders on term life plans are cost effective, as the premium remains constant throughout the term of the policy and thus the overall cost may remain lower than a freestanding policy. Let us look at some examples to understand the cost implications which can assist an individual in his decision making process.

A comprehensive health cover

A comprehensive health cover for the whole family with an add-on critical illness cover for an equal amount is perhaps the best option from a health coverage point of view. A Comprehensive health plan for the family, also known as a family floater plan is certainly a good option to consider, as it covers the entire family for the sum assured, where one person in the family can use a substantial part of the cover. This provides flexibility and costs less for a family of four than 4 individual plans. The plan also allows you the flexibility to restore the cover once you have made a claim at a price. Some plans do not allow the family to claim for the same illness, while some others do not allow the same person in the family to claim again.

If you are committed to providing the best health cover possible for your family no matter what, this is certainly an option to consider. However, if you feel like you have to break a bank to be able to pay the annual premium for such a policy, then you must move on and look at other options.

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The premium is high but the critical illness cover is not comprehensive as it covers only 8 illnesses.

If your children are healthy and young, you may not need a health plan or a critical illness plan for them just yet.

If you don’t have any children, a family floater plan isn’t applicable for you. However, there are plans providing basic health cover and a CI cover as well for you and your spouse.

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As can be seen from the above table, a basic health policy for 2 adults for two lacs (₹3679)plus CI cover of 5 lacs each for spouses ₹3,675 costs only ₹7,679 , but provides critical illness coverage for 37 illnesses as opposed to just 8 with the family floater plan. Even with ₹5,00,000 sum assured as opposed to 2 lacs the premium amounts to ₹8,755+₹3675 = ₹ 12,430.

This can be a cost effective solution for most couples.

Critical illness rider with term life plan

Critical illness cover with a Term life plan has several advantages as already indicated; it is cost effective and the premium stays constant. In the below example, premium for a critical illness cover of ₹20 lakhs for a couple is about ₹4,692 and the plan covers 19 illnesses. Since the plan is long term it’s a good idea to go for a large cover to account for the escalation in medical costs.

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A word of caution

There is no one-size-fits-all answer to what is right for an individual. You will need to weigh the various options to find the best policy for you.

Most Critical illness plans can be bought online without medical tests.

For a Critical Illness Claim to go through, the doctor (at a network hospital of the insurer you bought policy from) needs to confirm diagnosis of the illness, which is then corroborated by a doctor the insurer appoints.

It is possible that your policy covers certain conditions(say, cardiac block) but not others which may be related(say, cardiac valve replacement). It is important to read the fine print on critical illness covers thoroughly, and also to do research on your family history, to find out what illnesses you should definitely insure yourself against.

What do we suggest?

Many customers who are shopping for health cover are usually pushed into purchasing a comprehensive health cover for the whole family. A comprehensive health cover takes care of hospitalization expenses, surgeries, pre and post hospitalization expenses and free diagnosis. While this varies from one policy to another, one thing is certain about such a comprehensive health cover: the premium is prohibitively high and to get a sensible critical illness rider covering a reasonable number of diseases (say up to 15), you need to upgrade your base policy significantly pushing up the price even higher.

In fact, a comprehensive health cover is not needed at all, especially when the customer is below the age of 35, as the plan does not insure you against a significant number of critical illnesses at a reasonable cost.

A basic health cover and a standalone critical illness cover for the spouses or a basic health plan for the spouses and a joint term life policy with a CI rider makes more sense and represents a value for money proposition as seen from the examples presented.

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