Published in MoneyControl on 4th Feb 2019. Written by Abhishek Bondia.
At 49, Subhash suffered a major heart attack. His arteries had over 90 percent blockage. He underwent bypass heart surgery and then recovered fully. This was a huge shock for the extended family. A teetotaler, vegetarian, and non-smoker, Subhash was free from major vices loosely associated with heart ailments. Moreover, he used to go for regular morning walks too. Subhash says his doctor could not give a worthy plausible medical cause. Stress and genetics were the only things they pointed out.
This is not as unusual as it may appear to a few. I see several families with similar medical shocks. My neighbor’s 30-year old sister was diagnosed with ovarian cancer. At work, a colleague in the cubicle next to me lost his father to a sudden cardiac arrest. One of my college friend’s 10-year old daughter was diagnosed with a rare auto-immune disease. Most of us know at least one family in our first-degree connections, that has a person diagnosed with a critical illness. Still, many tend to ignore the possibility of such fate. Whatever may be the cause for such optimism it does not justify a lack of financial planning to handle a critical illness.
The cost of treating a critical illness is high. A hospital bill of Rs 1 lakh per day is not out of the ordinary. For cancer, costs could include surgery of the affected part, chemotherapy, radiation, diagnostics, medication and rehabilitation costs. Often the sum assured of a standard mediclaim policy falls short to cover the hospitalization costs itself.
Then, there are non-hospitalization costs. You may want to take a second opinion before undergoing a major procedure. One may want to consult a doctor abroad. For the period of treatment, which can go for months, one is typically unable to perform regular office duties. This creates double damage for the family. Expenses increase, while income goes down.
Also, a standard health insurance policy is restricted to hospitalization expenses only. For example, Alzheimer’s could be expensive to treat but most of the treatment happens outside a hospital. Loss of speech and deafness are other such examples. The cost of external equipment to aid rehabilitation are also not covered in our standard health insurance policies.
A critical illness policy fills this gap. Critical illness policy pays a lump sum on diagnosis of the covered ailment. Sum assured can go up to Rs 25 crore. Payout is independent of the proceeds from a mediclaim policy. So, you can avail of a cashless claim from a health insurance policy and get the critical illness claim as well. Claim for critical illnesses does not require submission of original hospital bills. Insurers primarily ask for diagnostic reports to confirm the ailment.
A few critical illness policies cover 30+ illnesses. Many cover 20+. A quick glance at these illnesses can also sometimes reveal our vulnerability. Plans that offer coverage for a higher number of illnesses are generally preferred. The important illnesses to cover are cancer, coma, stroke, heart attack, major organ transplant, and kidney failure. The insurance regulator has standardized the definition of several of these critical illnesses. If an illness is mentioned across insurers, coverage is likely to be similar.
When buying a critical illness policy, one has to select a type of insurer. Life, health, and general insurers, all offer such policies but with slight variations. Life insurers offer a fixed-term policy, say 15 or 20 years. Premium remains constant for the term. General and health insurers offer annually renewable policies. These have no fixed term and can be renewed life-long. However, premium increases with age. I prefer the latter, as disease incidence is higher for older age groups.
Life insurers also offer critical illness as a rider to standard term and investment plans. A policyholder needs to tread a little cautiously, as there are many variants of a critical illness rider. Some critical illness riders do not pay a lump sum, instead, future premiums of the investment plan are waived. Though such a rider helps to grow a corpus for the future, a patient is likely to value an upfront benefit more. Some critical illness riders would trigger an annuity payment for a defined term. This helps to cover the loss of future income. Another set of critical illness rider would pay lumpsum but reduce the policy’s death benefit. These are called accelerated critical illness riders. I generally recommend the stand-alone critical illness policy, for its simplicity in execution and comprehensiveness.
But then, it was a rider that helped Subhash mitigate his financial mess. He had not bought health insurance but had invested in a life insurance endowment policy. Hidden in that endowment policy was a critical illness rider. He got 50 percent of the sum assured immediately, and an annuity payment of 10 percent of the sum assured till maturity. Whether it was by accident or due to planning with foresight, the coverage was a blessing. It gave him, a businessman with three school-going children, a huge cash relief. Soon after, several of Subhash’s close friends and relatives called his insurance agent. They all wanted to buy that special plan that comes in handy when someone gets a heart attack.