Critical Illness Insurance: What It Is And Why It Matters

Life is in the fast lane these days and you can not predict what is going to happen next in this fast-paced world. Health problems, especially critical conditions like cancer, heart attacks, or strokes, can hit without warning, knocking not just your physical but also your financial stability. Critical illness insurance has emerged as a prime financial tool for people and families to navigate such challenges. But what exactly is it, and should you consider investing in it?

What is Critical Illness Insurance?

Critical illness insurance is a specific form of health insurance which is supposed to provide monetary care in the event of a specific critical illness diagnosis. Apart from regular health insurance policies that include the cost of treatment and hospital billing, this scheme offers a critical amount that can be taken by any insured for whatever purpose - one might use it for treatment, paying back loans that have been taken, or making sure there is a household budget that will be available to the household while its members are away recuperating.

Most of the policies cover the most severe and life-threatening illnesses, such as cancer, strokes, heart attacks, kidney failure, organ transplants, and so on. Different insurance companies offer different diseases covered, hence the importance of reading policy details carefully before buying the policy.

Why Buy Critical Illness Insurance?

The financial impact of a critical illness can be quite overwhelming. While your health insurance might cover hospitalization and treatment, it might not address the broader impact on your lifestyle and income. For example:

1. Income Replacement: If a critical illness prevents you from working, this insurance ensures you have a financial cushion to maintain your standard of living.

2. Over-and-Above Medical Expenses: You would incur costs such as home modifications, specific diets, or a professional career, which your standard medical insurance does not cover.

3. Debt Settlement: The money can be used to pay off existing loans/EMIs and reduce any other debts that might need to be addressed in recovery.

Advantages of Critical Illness Insurance

1. Flexibility in Utilisation: You can spend it according to your choice whether the payouts are for medical use or expenditure on household needs or pleasure during recovery.

2. Economical Premiums: Compared with the exorbitant cost of treating, premiums for critical illness plans are relatively low and most people can afford it.

3. Tax Benefits: The premiums paid for such critical illness plans are allowed as deductions under the Income Tax Act, which is Section 80D of the Act.

Disadvantages Remember

1. Limited protection: Policies only cover all the illnesses mentioned in the treaty. Diseases not mentioned by the treaty are not covered at all.

2. Waiting Periods: Most policies have waiting periods between 30 and 90 days, meaning claims cannot be made immediately after purchase.

3. High Rejection Rates: Claims can be rejected if the illness does not meet the insurer's specified criteria.

Do You Need Critical Illness Insurance?

Purchasing critical illness insurance will depend on health history, financial condition, and the level of coverage of existing insurance policies. A family whose breadwinner suffers serious illness will be saved money. Other debtors may require such cover since it functions as an effective safety net for them.

According to Siddharth Singhal, head of health insurance, Policybazaar, an Indian insurance aggregator and multinational fintech company, "A critical illness cover, when added to your health insurance plan, acts as a safety net to provide comprehensive financial protection in case of life-threatening diseases. While your health insurance policy primarily covers hospitalization and treatment costs, critical illness insurance goes a step further by offering a lump-sum payout upon diagnosis. This amount can be used for various purposes beyond medical expenses, ensuring financial stability during a challenging period".

He also adds, "One must ensure the cover includes coverage for a wide range of illnesses, including those relevant to family history and lifestyle. Choose a coverage amount sufficient to meet potential treatment costs and maintain financial stability. One must also understand the initial waiting period before claims can be made and compare premiums across providers to ensure affordability without compromising on coverage. Also, review the policy’s exclusions to know which conditions or situations are not covered".

In the end, critical illness insurance is about having financial stability at the most trying times of life. No one knows what tomorrow will bring, but being prepared can make all the difference.