Term plans are for protection, and do not cover the savings aspect

—Ramesh

Life insurance is a broad term used for various plans offered by life insurers. This can include both savings and protection plans. Endowment plans, unit-linked insurance policies (ULIPs) and term insurance are collectively called life insurance plans. Endowment and ULIP plans offer return on premium invested, apart from in-built death benefit coverage. Term plans are protection plans. They do not provide any saving element. Sum Assured is payable only in case of death. Term plans are much cheaper than other life insurance plans. You should first buy a term plan before considering other life insurance plans.

I have taken an insurance policy ₹50 lakhs with critical illness benefit. Is this rider beneficial in the long term, or should I buy a new health insurance policy by discontinuing the critical illness rider of the said policy?

-Yes. Trinathi

Critical illness plans are not a substitute for traditional health insurance plans and vice versa. The Critical Illness Plan linked to term insurance will start when the policyholder is diagnosed with the specified critical illness. Then, the policy will pay the sum assured of the plan. Hospitalization is not a prerequisite for initiating the policy. Even bills and receipts are not required for making a claim.

Traditional health insurance plans cover hospitalization expenses for all ailments, except for specified exclusions. They get triggered when the policyholder remains hospitalized for more than 24 hours and reimburses the actual expenses incurred on medical expenses for hospitalization. Original bill and receipt are required to make a claim.

Traditional health insurance plans are meant to cover relatively frequent and more prevalent diseases. This may include treatment for dengue fever, cataracts, heart surgery or cancer. The critical illness plan is meant to cover only rare diseases that cause significant financial impact. There is a severe cash crunch due to serious diseases like cancer or brain stroke. In addition to hospitalization, patients incur substantial rehabilitation expenses, lifestyle modifications and loss of income earning capacity. A critical illness plan helps reduce some of this huge cash outflow.

A traditional hospitalization insurance plan is a must. Critical illness plan is a supplemental coverage.

Abhishek Bondia is the Principal Officer and Managing Director of SecureNow.in.