Big Story | All you need to know about critical illness insurance

Having an insurance policy, be it life or health, is a must for you and your family. The outbreak of the Covid-19 pandemic couldn’t have reiterated its importance any more.

At times of emergency, an insurance policy helps ease your financial burden, to an extent. While a life policy supports your family when the primary breadwinner is not around, a health cover takes care of hospitalisation and other medical expenses.

In addition to a basic life policy (term insurance) and health policy, insurers also offer critical illness (CI) products, either as optional or as standalone cover.

Given the huge medical expenses related to critical illnesses, a CI policy could come in handy, particularly if you have a family history of diseases such as cancer or cardiac ailments.

What is a CI policy?

A CI policy is a benefit product, which means the insurer will make a lumpsum payment at the time of diagnosis, after which the policy terminates. The policyholder can use the money for medical or non-medical expenses, however they deem appropriate. There is no restriction on the end-use of the money. A health policy, on the other hand, is an indemnity plan — it covers for your hospitalisation expenses. Most insurers cover almost the same list of critical illnesses.

These include cancer (of different kinds up to specified stages), heart attack (first/second time), kidney failure, liver failure, stroke, major organ transplants, multiple sclerosis, lung-disease, major burns, trauma and major surgeries.

But there are a few things to note. One, a critical illness policy will not cover minor ailments and regular hospitalisation. Two, it will not cover the listed critical illnesses diagnosed within the waiting period. Three, the policy will not cover diseases developed due to smoking or through consumption of tobacco. Four, the policy will not pay any benefit in case of death of policyholder within the survival period or waiting period. Most insurers have a survival period clause wherein the policyholder must survive for a minimum time period, usually 7-30 days, after the diagnosis of a critical illness.

Life vs health insurer

You can buy a CI plan either as a standalone policy or as a rider, with both life and health insurers.

Most life insurers offer CI cover as a rider, but a few, including ICICI Prudential Life and HDFC Life, offer standalone CI plans.

On the other hand, almost all health/general insurers offer CI product as standalone policies.

You should choose a CI policy based on premium, sum insured (SI) and the diseases covered.

These aspects apart, there are also other features to consider.

Renewability: CI plans offered by life insurers are for a fixed term, after which the policy terminates. For instance, in SBI Life’s Poorna Suraksha, which offers CI benefit as an optional cover (rider), the maximum policy term is for 30 years. But CI policies from health/general insurers provide lifelong renewability.

However, keep in mind that life-long renewability is valid only till the policyholder is in good health. Once you get diagnosed with a major illness and make a claim, be it a policy with a life insurer or a general/health insurance company, you can’t renew the CI policy.

Waiting period: Generally, the waiting period — the time-frame for which the insured has to wait before the policy coverage can kick in — offered by health/general insurers are shorter (90 days) than those offered by life insurers (180 days).

However, this time-frame could vary with plans. For instance, Bajaj Allianz Life’s Smart Protect Goal plan — which offers CI benefit as optional cover — has a waiting period of 180 days, while the waiting period is 90 days for the standalone CI plan offered by Bajaj Allianz General.

Survival period: This is lower for CI products with health/general insurers. It is basically a time-frame where the insured must survive for a minimum time period after the diagnosis. Usually life insurers have a survival period of 14-30 days, and health/general insurers have a period of 7-30 days. For instance, in Bajaj Allianz Life’s CI optional cover, the survival period is 14 days from the date of diagnosis of the critical illness. In the case of Bajaj Allianz General’s CI policy, the survival period is 30 days.

But in the case of CI product offered by both SBI Life (Poorna Suraksha) and its general insurance arm, the survival period is 14 days. A few insurers including Star Criticare Plus and Care Assure don’t have the survival clause in their policies (only waiting period).

Other factors: Lastly, CI products offered by health/general insurers come with other advantages including SI enhancement, no-claim bonus and portability. Policyholders also get the benefit of reward points, which can be adjusted for lowering the premium at the time of renewal. For instance, HDFC ERGO’s my:health Suraksha plus offers preventive health check-up on renewal of policy with the insurer. Similarly, Star Health’s Star Criticare Plus offers up to 10 per cent discount on premium if more than two family members are added to the plan.

The CI benefit offered by life insurers don’t offer portability as most have CI benefit as optional cover. However, some policies do waive premium upon diagnosis of a critical illness for the policyholder until the policy term, such as SBI Life’s Poorna Suraksha, for instance.

Decision drivers

Now that you have an understanding of a CI policy and its features, you can further narrow down on a plan based on certain criteria.

Suitability: When regular health plans do cover common critical illnesses, the SI may not be high. Not all health policies have in-built coverage for critical illnesses; it is available as an optional cover only.

CI plans (standalone or rider) cover a broad ranges of critical diseases. For instance, Care Health’s Assure, a standalone CI plan, covers 20 critical illness with in-built personal accident cover, health check-up and second opinion. The SI starts from ₹1 lakh and goes up to ₹3 crore. Similarly, Max Bupa’s CritiCare covers for 20 common critical illnesses. Some plans such as CritiCare covers pre-existing diseases, too, after a waiting period of 48 months.

Our take: While anyone above 18 years old can get a CI policy, only some need it the most. One, if you have a family history of critical illnesses, you may be at risk. So it makes sense to buy a standalone CI policy. You can go for a CI policy specifically for cancer or cardiac-related ailments, offered by both life and health insurers. This includes ICICI Prudential Life’s Heart/Cancer Protect, Future Generali Life’s Heart and Health Plan, or HDFC ERGO Health’s iCan (a cancer plan).

Two, primary breadwinners (with or without any family history) whose families depend on their income can consider a standalone CI policy or CI as an add-on to a base health plan.

And lastly, those who don’t want to take chances on their health and finances can explore CI plan options.

Sum insured: Once you have decided to go for a CI plan (standalone or rider), ensure you have sufficient coverage. Remember, opting for a low cover only to save on premiums will serve little purpose. At the same time, taking too big a cover can pinch you, as you would have to cough up a large premium over a long period of time.

In most policies, the SI ranges from ₹5 lakh to ₹50 lakh or more, and in most cases, a standalone CI policy offers higher SI than a rider with a health policy. For instance, ICICI Lombard’s Complete Health Insurance offers CI as an optional cover which pays up to 50 per cent of SI as benefit upon diagnosis. On the other hand, Max Bupa’s CritiCare (a standalone CI policy) offers an SI of ₹3 lakh-2 crore.

Our take: It is better to decide on a sufficient benefit amount at the beginning itself. This is because the medical expenses associated with the treatment of a critical illness is high, and such diseases have high chances of recurrence. So you may want to plan your finances to pay for future treatments as well.

Add-ons: A standalone CI policy covers a broad range of critical illnesses and you can further enhance your policy with optional covers such as job loss and income protection cover. Some of the optional covers include for loss of job, children education, disability, hospital cash benefit and funeral expenses.

For instance, HDFC ERGO Health’s my:health Critical Suraksha Plus offers the option of pre-diagnosis cover; post-diagnosis cover such as second medical opinion and out-patient consulting; and loss of job (if the insured loses their job or have to voluntarily resign within six months of diagnosis of critical illness).

Similarly, ICICI Prudential Life’s Heart/Cancer Protect offers add-ons such as hospital benefit of ₹5,000 up to 10 days (maximum of 30 days over the policy term), and income benefit (1 per cent on the cover amount will be paid each month for a period of five years on diagnosis of any major illnesses; this is over and above the benefit payable).

Our take: When you purchase a CI policy, look for additional benefits, depending on the needs of your family.

But you should be mindful, as taking an optional cover with a CI policy could significantly bump up your premium. Take HDFC ERGO’s my:health Women Suraksha for instance.

The premium for a 30-year-old woman for a ₹10-lakh cover is ₹3,330 per year without tax. If pregnancy complications and loss of job add-ons are included, the premium shoots up to ₹19,532 per year.

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