Before you buy Critical illness Cover

Thanks to insurance providers, many people get confused between Health Insurance & Critical illness Cover. In layman terms, Health Insurance takes care of Hospitalization expenses whereas Critical illness covers specific Life threatening diseases like Cancer, Kidney Failure, Major organ transplant, Paralysis etc. Critical illness cover is restricted only to life threatening diseases included in your policy. The biggest misconception among insured is that all the life threatening diseases are covered in critical illness cover, which is not true. Normally health insurance is an annual policy which can be renewed though some health insurance providers have launched 2 year or 5 year Health Insurance policies. On other hand Critical illness cover is normally taken for long period i.e. 10 years, 15 years or 20 years. Premium of Critical illness cover is substantially lower compared to Health Insurance. Though all the hospitalization expenses of Life threatening diseases are covered under Health Insurance but the prime objective of critical illness cover is to take care of financial commitments in case of loss of income or expenses not covered in health insurance due to critical illness.

In Critical illness cover, insurance provider pays the lump sum amount (Coverage amount) if the insured is diagnosed with any life threatening disease covered in Critical illness cover. The claim is only processed once and the policy is terminated after processing the claim. Hospitalization is not necessary for claims under critical illness cover. Insured person has to produce only the proof of diagnosis instead of hospital bills. Unlike other insurance policies, in critical illness cover an insured person can spend the coverage amount as per his/her wish. The premium paid towards Critical illness cover is tax exempted under Section 80(D) of Income Tax Act, 1961.

Biggest dilemma for my clients is that they already have Health Insurance than why do they need Critical illness cover. My answer is that Health insurance is basic coverage and Critical illness cover is booster to Health insurance. Critical illness cover is must for earning member of the family. If god forbids, an earning member of the family is being treated for critical illness than it might result in sudden loss of income or how to take care of expenses not covered in health insurance or misc expense like travel etc. It can put entire family in financial mess. Hospitalization expenses can be covered by Health Insurance but what about other financial commitments. Moreover, if there is any family history of critical illness in those cases it is strongly advisable to opt for critical illness cover.

Many of my readers have complained that insurance provider has rejected their claim. Let me be very honest that claim settlement ratio of Critical illness cover is very poor. It is critical to consider following points before you buy critical illness cover. Unlike life insurance policy this policy should not be bought on face value of your good old family insurance agent.

No. of Diseases Covered

As i mentioned that most of people assume that all the life threatening diseases are covered. Most of the policies available in market cover only 6-8 diseases but more comprehensive policies cover upto 20 diseases. An informed decision in this regard is must considering the risk factors due to family history, profession, life style etc.

Loosely Defined Definitions

Point to note is that there is no blanket coverage of all the diseases. The Medical definition of each disease may vary for each insurance provider. The most loosely defined definitions are of Paralysis and Stroke. A claim against partial paralysis like paralysis of few fingers can be rejected by the insurance provider. It is critical to understand the “Medical” definition of all the diseases covered.

Survival Period in Critical illness Cover

The most villainous clause. The insurance provider expect a person with Critical illness to survive for certain period known as Survival Period normally 30 days before the claim is processed. It is quite ridiculous. At one point disease is life threatening and on other hand insured has to survive for 30 days. The coverage amount is paid only to the insured after survival period. Unlike term insurance policy, there are no death benefits attached to critical illness cover.

Kidney Failure 

Kidney failure is one of the most common life threatening disease. We have 2 kidneys and fact of the matter is that a person can survive easily on 1 Kidney. God has given us 1 extra kidney as a back up. Now few of my readers wrote that their critical illness cover claim is rejected as they are diagnosed with Kidney failure. Let me clarify that 1 kidney failure is not life threatening. Critical illness cover claim is processed only in case both the kidneys fail.

Partial Disability 

Partial disabilities like total loss of vision of 1 eye or total deafness in 1 ear is not considered for claim settlement. Only total loss of vision or deafness of both eyes/ears certified by doctor are considered for claim. Secondly, the loss should be irreversible i.e. doctor should certify that loss cannot be treated or person will not be able to regain vision or hearing capability in future.

Deferred Payment of coverage amount 

In some cases, the insurance provider do not process 100% claim as a lump sum payment but is deferred over a period of time. It is normally for cases where the insured survive the life threatening condition e.g. permanent disability. Amount is being paid for certain period say 5 years in equal installments of 20% of coverage amount.

Cause of Physical Disability

For physical disability related cases, few insurance companies consider only external causes for claim settlement e.g. disability caused by accident or natural calamity etc.

Pre-Existing Disease 

In both Health insurance and Critical illness cover, the Pre-Existing Diseases are not covered during waiting period of normally 4 years. Now, most of the people are not aware that at the time of claim if Life threatening disease is linked to any pre-existing disease during the waiting period than the claim can be rejected. Its a law of cause and effect.

Pre-existing disease waiting period should not be confused with policy waiting period. In critical illness cover, policy waiting period is normally 90 days i.e. if the insured is treated with any critical illness within 90 days of policy purchase than no claim will be settled by the insurance company. Agents mis-sell critical illness cover by projecting policy waiting period of 90 days as a waiting period for Pre-Existing Disease.

Tax Free Coverage Amount 

Another most common query is regarding taxability of the claim amount received by the insured. The claim received under Critical illness cover is tax free in the hands of insured.

I have tried to cover all points related to Critical illness Cover, if i missed any point than please feel free to share your feedback/input in following comments section.

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