Health insurance: Should you buy a critical illness insurance policy?

With medical treatment getting increasingly expensive, it is important to buy a critical illness insurance policy. The policy can be taken either as a rider with a life insurance or health insurance policy or can be purchased as a standalone policy.

Insurance companies cover around three dozen critical illnesses such as cancer, kidney failure, major organ transplant, etc. On diagnosis of any of the listed critical illnesses, the insurance company will pay the full sum insured which will cover the cost of the specific treatment. As the policyholder will suffer loss of income because of the critical illness, the pay-out will help him pay for the treatment costs, support his family financially and compensate for the loss of income immediately. On the other hand, a health insurance plan is an indemnity plan which pays the expenses (cashless or reimbursement) actually incurred.

You have to keep in mind that critical illness insurance policies have a waiting period ranging from 30 to 90 days. So, if you are already suffering from a critical illness, then you will not be able to purchase the policy. However, you can purchase the policy even if you are suffering from certain lifestyle disorders such as high blood sugar, blood pressure which increases the risk of critical ailments. Policyholders get tax benefit of up to Rs 25,000 under Section 80 D of the Income Tax Act. Insurers provide a free look period of 15 days starting from the date of receipt of the critical illness policy document.

Why buy?

If you have a family history of diseases such as cancer, coronary artery bypass, etc., or has lifestyle diseases such as diabetes, you should purchase an adequate critical illness cover at an affordable premium. The sum insured should depend on the age, income and location. Typically, critical illness treatments are long-drawn. So, the sum insured should cover the costs of hospitalisation, medicines, and support the family’s monthly expenses in case you have to stop working to recuperate. Also, long-term financial liabilities such as loans, children’s education should be factored in.

Ideally, the sum insured should be the annual income of the insured multiplied by the number of years one may need to recover. Before finalising, read the terms and conditions and the list of exclusions. Select the policy which has a high age limit of renewal to maximise the benefits.

Standalone or rider?

Ideally, one should buy it as a standalone policy as there will be a limit on the sum insured in a rider, which will be the same as the base policy. However, the premium will be higher in a standalone policy as compared with a rider.