Pros and Cons of Critical Illness Insurance

You might be familiar with the concept of health insurance and its importance for dealing with medical emergencies. But what happens when you encounter a more severe ailment whose treatment costs more than the limit of your health plan?

Diseases like kidney failure, heart disease, cancer and coronary artery bypass surgery have comprehensive and expensive procedures. Most standard health insurance plans cannot cover them, and you might need to pay out of pocket. 

Fortunately, you can avoid paying for these treatments personally by choosing a critical illness insurance plan.

How familiar are you with this health plan? Read on as we answer the question ‘what is critical illness insurance’ and compare the pros and cons to help you make an informed decision.

What is Critical Illness Insurance?

Most insurance companies offer critical illness cover as an extended form of health insurance. This means you can use it as a top-up by paying an extra premium on top of your current health insurance payments.

It includes a comprehensive cover dealing with specific long-term and life-threatening diseases. Recognising the expense and nature of the treatment for these diseases, insurers have carefully crafted critical illness insurance to cover exorbitant hospital prices.

Types of Critical Illness Insurance

The varying plans offered in a critical illness cover differ according to the diseases covered. Most insurance policies consist of more than one severe ailment. Some of the most common covered illnesses include the following:

• First heart attack (myocardial infarction)
• Cancer (of specific severity)
• Paralysis
• Repair of heart valves
• Organ transplants

Benefits of Critical Illness Insurance

• Saves the hassle of dealing with hospital fees, doctor fees and other medical expenses while treating life-threatening diseases.
• Provides a predetermined lump sum to deal with medical and non-medical expenses.
• Certain plans also bear the cost of treatment in other countries.

Pros of Critical Illness Insurance

Traditional health insurance often fails to keep up with the increasing medical expenses while treating heart and kidney problems. Left unchecked, it adds to your medical bills, forcing you to rely on debts to fund your medical treatment.

But with critical illness insurance, India can avail of a lump sum amount, whose value depends on the severity of your condition. In addition to this, the critical illness insurance benefits include the following:

Financial Security

The treatment for life-threatening ailments requires complete hospitalisation or frequent doctor appointments. In either of these scenarios, your income suffers considerably. Piling medical bills without a source of income can be devastating for your family and leave you financially vulnerable.

However, when you choose critical illness insurance, you are provided with a lump sum to handle the cost of your treatment and settle non-medical expenses. You gain the freedom to use the amount for household expenses or to pay the school fee of your children. The payout from this insurance plan eases your financial burden and helps you focus on your treatment.

Tax Benefits

Under section 80D of the Income Tax Act, 1961, the premiums paid as part of your critical illness insurance are tax-exempt. You also do not incur any deductions while receiving the payout for your treatment.

Essentially, paying for critical illness insurance helps you stay prepared against life-threatening illnesses while saving close to INR 25,000 to INR 1,00,000 per year.

Wide Coverage

If you explore critical insurance plans, you will notice that most policies cover two or more ailments. Heart attacks and specific stages of cancer might be the most common conditions covered under these plans, but other problems like paralysis and strokes are not far behind.

Cons of Critical Illness Insurance

While critical illness insurance can be valuable to stay guarded against unforeseen conditions, the fact remains that they are not considered mandatory. Here are some of the disadvantages of critical illness insurance.

Specific Usage

Unlike health insurance, critical illness insurance coverage cannot be used for minor medical procedures and only covers a limited range of diseases. It is less flexible than a health insurance plan.

High Premiums

Provided that the coverage is for exorbitant amounts, it is natural that critical illness insurance demands a higher premium. Although it can be rewarding to maintain this premium if you experience severe distress, the high premiums can derail your budget and lead to financial stress.

No Cover against Pre-Existing Conditions

This is perhaps the most significant point against purchasing an additional premium. As a rule of thumb, critical illness insurance does not grant you payouts if you suffer from the disorder before buying the premium. It is only applicable for diagnoses after purchasing the premium and is subjected to a set of conditions.

Choosing the Right Critical Illness Insurance Policy

If you decide to buy a critical illness insurance policy after skimming through the pros and cons, here are some factors you need to consider before selecting the type of policy.

Policy Coverage

Are you at risk of heart ailments? Or are you susceptible to strokes because of family history? You can ascertain the perfect policy depending on the answer to these questions. Given that the most critical illness policy covers two or more covered ailments, you should target plans with diseases that are more likely to affect you.

Premiums and Deductibles

Premiums are semi-annual or annual instalments you pay the insurance company to be eligible for a lump-sum payout when your situation requires it. On the other hand, deductibles constitute a fixed amount that you must pay before the insurance company spends money on your behalf.

In standard cases, a low premium is combined with a high deductible. But the ideal premium and deductible ratio depends on your needs. If you feel that you will require constant medical attention and use critical illness insurance often, it is safer to buy a plan that offers high insurance but a low deductible and vice versa.

Waiting Periods

The standard wait time for the payment of a lump sum from the day of your diagnosis is 30 days. Some insurance companies may provide the amount faster, provided your diagnosis is genuine. Look for companies providing rapid payouts to prevent any personal expenses.

Renewability

If you are committed to critical illness insurance and are sure that you will require it constantly, you can choose a renewable plan. Plans that mention renewability do not require a different underwriting. You can extend your current plan per your needs without surrendering your coverage.

How to File a Critical Illness Insurance Claim

Understanding the Claim Process

You can only file for a critical illness claim after you are diagnosed with a disorder. Pre-existing conditions don’t count. When you receive a confirmation from a medical practitioner, here are the steps to ensure a hassle-free claim.

• Intimate your insurance company about the nature of your disorder or condition.
• Upon receiving your message, the insurance company will immediately contact a representative who will inform you about the relevant documents needed to process the claim.
• The representative will ask you to submit all the relevant documents.
• Once the documents are processed and verified by the company, you receive a lump-sum payout that can be used for medical and non-medical purposes.

Documentation Required

• Your ID proof to verify your credentials.
• Carefully signed and filed claim form.
• Doctor’s certificate mentioning the diagnosis.
• Copy of medical records.
• Photocopy of your hospital summary and other relevant documents like prescriptions.

Timelines

Once the doctor confirms your diagnosis, contact the insurance company immediately. Their representative will provide you with a 90-day period to submit all the appropriate documents to process your claim and award the lump sum.

Summing Up

On paper, a critical illness cover might seem like a conditional policy that might not always be valuable, especially with the relatively high premiums. However, it is vital to remember that severe medical conditions can leave you financially vulnerable, especially if you have a family history of certain disorders.

In most cases, it is safer to include the critical illness plan to stay protected if it fits within your budget. This plan can be crucial in times of crisis and help you deal better with medical emergencies that cannot be contained under a standard health insurance plan.    

Disclaimer: