Factors one should consider when buying critical illness insurance cover

In recent times, term and health insurance have gained a lot of popularity. However, the same is not the case with critical illness insurance. There is lack of awareness about the product and how it works. People also think that their regular health insurance is enough to take care of all types of illnesses. The cost of critical illness insurance policies is also a major deterrent.

Critical illness insurance can prove to be life saver for those who are diagnosed with a serious and long-term illness which require expensive treatment. A critical illness insurance policy provides a huge lump sum benefit on the diagnosis of any critical illness covered under the policy.

But buying critical illness insurance can also be tricky. Life insurance companies offer critical illness insurance as riders along with term insurance or endowment plans. General insurance or health insurance companies offer critical illness insurance either as a rider along with regular health insurance plans or as stand-alone products.

Buying critical illness cover as a rider comes with many limitations. The cover amount and premium for a critical illness rider should not exceed the cover amount and premium of the base policy, respectively. There is restriction on the term of critical illness rider depending on the term of a base policy. On the other hand, buying a stand alone critical illness cover from a health or general insurance company comes with no such restriction. These plans are more flexible in terms of cover amount and duration of the policy.

Deciding on the cover amount is important. While there is no rule of thumb here, one can link it with the annual income of a policyholder. A cover amount equal to four to five years of annual income looks good. So, a person having an annual income of ₹5 lakh can go for a insurance cover of around ₹20 lakh. It can help one sustain financially for a few years in case of loss of job due to critical illness. While buying a higher cover sounds better, it can get really expensive. Also, the insurer might restrict you from buying a very high critical illness cover depending upon its underwriting norms and your medical condition.

Common critical illness products in the market cover around 15 to 20 illnesses and so is not comprehensive. These plans cover serious illnesses like cancer and renal failure. But they do not cover illnesses such as Alzheimer’s or Parkinson’s disease . But some insurers have now launched critical illness products that cover 64 or even up to 99 illnesses. These are obviously more comprehensive policies and provide coverage against critical illnesses. But such plans can be expensive.

All critical illness insurance products have layered benefits where the claim amount paid by the insurer depends on the severity of the disease. A certain condition might make a policyholder eligible for just 25% or 50% of the initial cover amount. A certain more severe condition of the same illness might pay 100% of the cover amount. This will entirely depend on the diagnosis of the illness where the severity would be mentioned.

So, it becomes important to read the product brochure and other sales material in detail to know what it offers. This will ensure that subscribers know exactly what they are going to buy. Some sales material might not contain all the details and list of what is covered because of the complex nature and long list of illnesses covered under the plan. But the policy document contains the entire list of coverages and exclusions in detail.

One should read the policy document once to ensure that he or she knows what the product offers. If someone is not happy with any of the terms and conditions, they can return the policy within the free look period.

Nidhi Verma is founder and chief executive officer at Algates Insurance

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Updated: 28 Sep 2023, 10:52 PM IST