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News & Views


Thursday, Jan 21, 2016

5 reasons your term plan needs Critical Illness Benefit

   [Source : The Economic Times]

When one thinks of life insurance they must consider opting for a term plan. This is the simplest and most cost effective insurance product. Term insurance plans are designed to ensure that in the event of the policy holder's death, the family gets the sum assured (the cover amount).

Under the term plan, the policyholder has to pay premium regularly or a one-time payment depending upon the type of policy purchased. A sum of money (death benefit) is paid to the nominee if the policyholder dies during the period for which he/she is insured (policy term). The policyholder also gets a range of options to get enhanced protection.

Some term plans also provide protection to the policyholder in the form of cash payouts on diagnosis of major illnesses like cancer, or heart attack or organ failure. Critical illness can dry out a person's finances in an unprecedented way and since they come without a warning, its best to have a term plan with a critical illness benefit.

Five Reasons why your term plan must come with a critical illness benefit:

1. Acts as an income replacement

2. Premiums stay the same

3.Double tax Benefits

4. Gives you a large cover that can take care of medical & day-to-day expenses

5. Increases chances of survival

A term insurance plan that comes with a critical illness benefit can cover both hospitalisation and non-hospitalisation expenses too and may also provide much needed cash flow during the recovery period. Alternatively, you can go for a higher health cover as a regular health cover provides a much wider coverage.

When one is very ill, the medical bills mount up. Things get worse if the patient happens to be the sole bread earner as then there is no source of income at all and the going gets tough.

Take cancer, for instance, that alone accounts for 7 per cent of deaths in India. The cancer drug Herceptin, one of the most effective drugs for breast cancer, costs Rs 75,000- Rs 1 lakh for a vial. Patients typically need anywhere from 6 to 17 vials for treatment. Similarly, Avastin, another popular drug, costs anywhere between Rs 25,000 to Rs 50,000 a cycle, with patient requirements being 5 to 10 cycles per course. With the cost of treating this disease running into several lakhs of rupees, cancer patients often prefer to abandon the treatment rather than run into penury. Oncologists have plenty of depressing stories about families who have been completely destroyed in meeting the mounting treatment costs.

Therefore, it is important for all of us to be prepared to handle such a situation and insurance builds our confidence to face such a challenge. With a critical illness cover along with a term plan, one can get a tax-free lump sum in a one-off payment if one is diagnosed with a serious illness that is covered by insurance companies.

You should use it in such a way that it pays off your mortgage, debts or any other liability you may have, or even pay for alterations to your home like getting a hospital bed installed or a wheel chair - should one require it.

The critical illness benefit will pay out if one goes through the specific medical conditions listed on the policy. For instance some term plans cover critical illnesses like heart attack, stroke, certain types and stages of cancer and conditions such as multiple sclerosis. Many policies may also waive off future premiums if one is permanently disable. This is because on permanent disability it is most likely that you may lose your source of stable income and may not be able to pay future premiums if one is permanently disable. This is because on permanent disability it is most likely that you may lose your source of stable income and may not be able to pay future premiums.

Points to consider before going in for critical illness cover:

- Read the list of all critical illness insurance coverages included in your policy.

- Different companies offer risk coverage towards different critical illnesses. Study them carefully before incorporating them.

While the maximum term of a plan is 30 years, it is interesting to note that the coverage continues even after claiming benefit on select critical illness. Besides, premium paid is eligible for deduction under section 80C & section 80D (the overall limit of deduction for investment u/s 80C & u/s 80D of the Income Tax Act, 1961 are Rs. 1,50,000 & Rs. 25,000 respectively, subject to conditions mentioned therein).

Interestingly, one can get the full benefit amount for Critical Illnesses covered under this category. The benefit amount payable is equal to the Critical illness cover that the policy holder has chosen.

For instance, if someone chooses 1 crore Sum Assured with a Critical Illness Benefit of 30 lakhs, he will be paid the Critical Illness benefit of 30 lakhs up front on detection of any of the critical illnesses covered by the policy. This amount will be deducted from the overall Sum Assured and the policy continues with the Sum Assured i.e. Death Benefit of 30 lakhs. The premiums reduce once the critical illness benefit is claimed and the policy continues with the basic life cover still in place.

Besides, the full amount assured as chosen under the plan is paid in the event of Death or Total Permanent Disability of the Life Assured. This benefit is payable even if death or disability occurs because of an accident.

One of the immediate effects of such a policy is that it does not have the minimum survival period and benefit is paid immediately based on the first diagnosis itself. The claims are settled within 21 days of receipt of all the necessary documents.

Besides, many policies can be easily availed online by paying premium in instalments. All you need to fill is the proposal form and medical declaration form.

It will be worthwhile to analyse ones' lifestyle and make a note of the critical illnesses you might be susceptible to.

However, one must note that some Critical Illness Plan do not cover claims that arise within 90 days from the commencement of the policy. This clause is applicable only for fresh policies, not continual renewals.

Meanwhile, in India the average life expectancy is generally lower than the average of 70 years. The attitude towards treatment of illness remains one of fatalistic surrender to destiny.

Today, non-communicable diseases like cancers, cardiovascular diseases, chronic respiratory diseases, and diabetes, are the chief killers in the subcontinent - these four diseases alone account for 60 per cent of total deaths in India. The country's disease burden is only expected to increase, significantly so, as the incidence of heart disease and diabetes is projected to double, and cancer cases are expected to increase by 25 per cent. One grim World Health Organization statistic is that there is a 26 per cent probability that a person between 30 and 70 years could die of any of the four non-communicable diseases in India.

It is imperative for us to consider having a critical illness benefit in our term plan as we would not like to be caught in a situation where we give up treating ourselves or our loved one for want of finances. Though the Critical Care Claims process is transparent, ensure that you are aware about the exclusions and claim process mentioned in your policy. Make an informed choice.

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