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News & Views


Monday, Jul 11, 2016

Decoding the threat of critical Illnesses in India

   [Source : The Economic Times]

"Life is what happens when you're busy making other plans."

We plan hard to get our next promotion, to get the CEO to recognise us as a key contributor to the team. We even plan our daily commute just to reach office 3 minutes early. But all this planning is based on the assumption of ceteris paribus, which means 'all other things being constant' or 'nothing else being changed'.

Unfortunately for young Indians, everything changes in a matter of minutes. Something similar happened to Tarun, when he received a phone call from his doctor informing him about his Leukemia. Thankfully for him and his loved ones, he was able to weather the storm with quality healthcare, which he was able to afford due to proper planning.

But for too many others, the cost of medical care in India is fast becoming more and more unaffordable.

Taking note of this, insurers in India have created a number of plans that can help arrange funds in troubling times. When it comes to critical illnesses, there are mainly 4 types of insurance plans to choose from:

1. Health insurance policies

Health insurance plans are indemnity plans that only compensates you for expenses incurred based on actuals. Thus, these plans can be ineffective when looking for cover against critical illnesses whose treatment costs start as soon as they are diagnosed.

2. Disease specific covers

As is clear from the name, these plans only protect you against a particular type of disease, such as cancer, though the upside is that they usually cover all stages of the disease. Unfortunately, one cannot predict which disease one is going to contract, even if you take a keen look at your family history, and thus, these plans can be ineffective.

3. Critical illness plans

The major upside of this option is that you can choose the cover according to the illnesses you are prone to contract, based on your lifestyle and family's medical history. The major downsides are that it is quite expensive, especially when taken alongside separate health insurance and life insurance plans, and getting a separate plan can be cumbersome.

4. Critical illness riders with life insurance plans

The reason such plans have become popular is because they are a much more economical way of planning for the financial implications of critical illnesses. Life insurance is a must and is the first kind of insurance any one should buy, so getting a CI rider with it is the most prudent way to keep yourself protected. The disadvantage used to be that they covered a limited range of diseases, but CI riders with life insurance policies nowadays come with much broader portfolios. For example, HDFC Life Click2Protect Plus covers 19 illnesses.

As shown above, buying a critical illness rider with a life insurance plan is the most practical and economical way of protecting yourself against major critical illnesses. But the question that remains is- which life insurance plan should you buy?

As you would have been told countless times before, Term Insurance is the simplest and cheapest way to secure your family's financial future against unfortunate eventualities such as death, disability, or critical illnesses. If you take it at a young age, you could get comprehensive protection for premiums as low as Rs. 55 per day- not a high price to say considering how expensive drugs and medicines are.

Next is the question of which particular term plan to purchase. To make this decision simpler for you, we've listed out some factors you must consider:

1. Coverage options

A large number of insurance companies offer flexible coverage options that include riders for terminal illnesses, permanent disability, accidental death, and critical illnesses. However, do ensure these riders are not limited in terms of coverage amount or number of situations covered. For instance, HDFC Life Critical Illness Plus rider offers protection against a whopping 19 major diseases and surgeries, including cancer, heart attack, kidney failure, brain tumor, lung disease, etc. so you would be protected comprehensively.

2. Pay-out options

Misuse of a huge pay out from an insurance policy can lead to extensive financial troubles down the line. Thus, insurers such as HDFC Life Click2Protect Plus have started offering multiple benefit options to policy holders, including:

lump-sum pay-out of the death benefit lump sum pay-out of death benefit with extra sum assured paid in case of death due to accident part of sum assured payable on death and the remaining payable as monthly income for 15 years and sum assured paid on death & monthly income paid for next 10 years, where the monthly income can be chosen as level or increasing at 10% p.a.

3. Flexibility to increase/decrease coverage

A 25-year old cannot accurately predict his or her future needs after major life events in the future. HDFC Life allow policy holders to increase death benefit at key life stages such as marriage (50%), birth of their 1st child (25%) and birth of their 2nd child (25%). The net effect is a 100% increase in the sum assured in a phased manner as the policy holder starts to get a clearer picture of his/her financial requirements. Conversely, as you get older and your children become independent, you may realize that you don't need as much insurance cover anymore. This plan also allows you to reduce your cover after you have attained age of 45 years and enjoy recalculated premium.

The question that remains is: what if you already have a Term Plan?

IRDAI reports suggest that the penetration of life insurance in India fell from 3.40 in 2011 to 3.17 in 2012. So even if you do have a term plan, chances are you are underinsured and don't know it. Plus, as explained above, unless you have a CI rider with your term plan, you will be exposed to all sorts of financial difficulties. For starters, do a simple check: the sum assured for a robust term insurance plan should be at least 15 times your current annual salary.

Conclusion

Thus, the ideal term plan would be one that combines the benefit of a Life Insurance policy- comprehensive cover- with the benefit of a CI rider- cost-effectiveness and convenience.

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