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What does 'critical illness' mean?
 
In insurance parlance, 'Critical illness' is classified as those illnesses that, even after treatment (if at all), the disease alters the lifestyle of a person drastically. Take for example, cancer. Whatever the kind of cancer it is, even after getting cured, the person who is affected by that disease can never really be as 'normal' as he/she was before.
 
To begin with, there is huge medical cost for treatment (depending on how advanced the disease is) and the expense of routine medical check-up. Plus, depending on how much the patient is affected, he/she may or may not be able to pursue the career in the same pace as before so there is potential loss of income. In essence, not only the savings could be wiped out, the earnings could come to a grinding halt. 'Critical Illness' policy came about to protect families with cash benefit under such situations.
 
I am hoping that most of you, by now, have at least some Health insurance policy that protects you and your family against the financial burden that could arise due to hospitalization of any of the family members.
 
For a normal healthy family of 4 with the oldest person, say about 50 years, we may think, a health insurance policy for Rs. 500,000 is sufficient. But, what if, one of the members is suddenly diagnosed of cancer, or some organ failure. The Rs. 500,000 is simply not sufficient to take care of the medical expenses arising out of such illness. At the same time, it is absurd to be paranoid about all the possible ailments a person could have and get a health insurance policy for, say, Rs 1 Crore.
 
So, the ‘Critical illness’ policy is something one can purchase as an additional cover to take care of major illnesses. Each insurance company has a different list of what it considers as critical illnesses. When you purchase a 'critical illness' policy, what the company is promising is to pay a lump sum of amount if the insured person is diagnosed of any one of its listed critical illnesses, provided the insured lives at least 30 days after being diagnosed with that illness. The idea is that, hopefully, with the additional money, the insured is in a better position to handle the ailment.
 
The 'critical illness' policy generally comes as an optional cover with health insurance or life insurance. There are also companies that let you purchase this cover as a separate policy.
 
Let us say an individual of 50 years is purchasing Health insurance for Rs. 500,000 at a cost of about Rs. 11,000. If he/she also chooses to add the optional 'critical illness' cover for another Rs. 500,000, then that option would cost another Rs. 3,900, thus the total policy premium would be about Rs. 14,900.
 
If your employer already has health insurance for you and your family, you have the option of purchasing critical illness cover alone separately. This may cost about Rs. 6000 per year for the same age and cover.
 
Under life insurance policy also, Rs. 5 lacs of critical illness would cost about Rs. 6000 for the same aged person.
 
Points to consider when investing in critical illness cover:
  • Understand your own family history to determine the risk of inheriting the same
  • Understand your own lifestyle (food habits, physical exercise, stress level, etc) to determine the diseases that you are prone to
  • Look for policies that cover the critical illnesses based on your self assessment from the two points above plus other most common and complete list of illnesses
  • See if it covers almost all the heart diseases that you can think of: bypass surgery, first heart attack, coronary heart disease, heart valve surgery, etc. since much more Indians are prone to heart diseases
  • Understand the type of claim settlement: Is it a lump sum payment on diagnosis (or) is it payment of medical expenses
  • The age at which the company stops renewing critical illness policy
 
Here are some facts:
  • Over eight lakh Indians are affected by cancer every year
  • Nearly five crores Indians (50 million) suffer from coronary heart disease each year
  • Almost one lakh Indians are diagnosed with kidney failure each year
  • Medical inflation is estimated at about 15% per annum
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