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Monday, May 29, 2017

Medical inflation, lifestyle diseases make critical illness insurance a must: Here's how to buy it

[Source : The Economic Times]

A serious illness, like most calamities, often arrives unannounced. And much like a natural disaster, takes a grievous toll: physical, emotional and financial. Worse, the diseases that were often encountered typically after 50 years of age, have now begun to strike as early as in one’s 30s and 40s, given the stressful and unhealthy lifestyles.

According to the latest India Fit report from GOQii, a fitness technology platform, one in three people above the age of 30 suffers from a lifestyle disease, be it cardiac issues, diabetes or high cholesterol, which often escalate to serious health issues. A government report suggests there are more than three crore heart patients, while the World Life Expectancy data shows heart ailments, lung diseases and strokes to be the leading causes of death in India.

The National Cancer Registry Programme of the Indian Council of Medical Research claims there were nearly 38 lakh Indians suffering from cancer in 2012-14. While medical advancement has increased the chances of survival, it also means that one needs to be financially prepared to avail of the facilities. Whether it’s a heart ailment, cancer or renal failure, a critical illness can cause a huge dent in your finances. Treating and managing these diseases can be a long-term ordeal and come at a high cost, Rs 35 lakh in some cases.

Average cost of treating various critical illnesses

Find out how much you may have to shell out for these major medical problems. Add to it the loss of income that may ensue when you are out of action.




Source: India Healthcare Tourism, a government of India portal. ASD: Atrial septal defect VSD: Ventricular septal defect AVR: Aortic valve replacement MVR: Mitral valve replacement

It doesn’t help that the high medical inflation—12.5% in 2016, as per the 2017 Global Medical Trends Survey Report—has shot up the cost of treatment. Since an average household can’t lay access to high sums with ease, people are forced to fall back on their life’s savings or borrow from family and financial institutions. “Sale of assets, liquidation of savings, and loans from friends and relatives to fund the treatment may put your family’s financial future at risk,” says Upendra Namburi, Chief Marketing and Innovation Officer, Bharti AXA General Insurance.

It’s worse if the afflicted person is the sole breadwinner because such illnesses often eliminate or reduce one’s ability to earn for a considerable period of time. For instance, it can take up to three months to recover from an open-heart surgery, which can include heart valve replacement (HVR), coronary artery bypass grafting (CABG) and aorta surgery.

This is why it’s imperative to prepare oneself for such an exigency. One of the most affordable options is to buy adequate insurance, more precisely a critical illness cover. “These covers are apt for those entering their 40s as one is genetically susceptible to ailments such as heart conditions and cancer at this age,” says Antony Jacob, CEO, Apollo Munich Health Insurance. Agrees Sanjay Datta, Chief, Underwriting, Claims and Reinsurance, ICICI Lombard: “It is a must to buy this cover before the age of 40, and is advisable to buy it at a younger age to save on premium and maintain a continued coverage.”

So try to pick a suitable plan around 35 years of age as the incidence of these diseases at younger ages is increasing. More importantly, once a disease is contracted, it is difficult to secure insurance. But how do you decide which cover to go for? Read on to find out how a critical illness plan works and the things you should consider before picking one.

What does it offer?

Unlike regular health plans, which are indemnity policies and pay only for in- patient hospitalisation, critical illness covers are defined benefit plans and offer a tax-free lump sum on the diagnosis of a specified illness. “The sum assured under the fixed benefit plan is higher than the cost of treatment. Hence, these plans serve the dual purpose of covering the cost of treatment and income replacement,” says Subhrajit Mukhopadhyay, Chief and Appointed Actuary, Edelweiss Tokio Life. The most common illnesses covered under such plans are heart attack, cancer, stroke and kidney failure.

Pick your critical illness plan

Opt for a higher number of illnesses, but pay attention to the organ system, ensuring that a single ailment is not split into various procedures.


This is a sample, not a complete list of plans in the market. Most insurers mandate a waiting period of three months. Premiums are inclusive of taxes, for a cover of Rs 10 lakh, for a 35-year-old male, non-smoker. Source: ComparePolicy

Typically, there is a waiting or cooling off period of 90 days, after which the claims become admissible. Apart from this, there is a survival period—30 days mandated by most insurers—which means that you will be eligible for the sum assured only if you survive for 30 days after the diagnosis. Some policies, such as Religare Assure and Star Criticare Plus, also have a zero survival period, which means that the claim is payable even if the insured person passes away on the day of the diagnosis. This is a useful feature, but also comes at a higher cost.

Remember, however, that these plans do not replace the basic health plan. “Critical illness plans should not be considered as a substitute for an indemnity plan and should be opted for as an add-on cover,” says Jacob. Shreeraj Deshpande, Head of Health Insurance at Future Generali, concurs: “These plans complement the regular health plans and provide support mainly for the loss of income or earning capacity of a person due to the prolonged hardship.” “Though most regular health plans cover major critical illnesses, they come into play only in case of hospitalisation and do not provide cover for the entire cost of treatment,” says Puneet Sahni, Head of Product Development, SBI General Insurance.

More importantly, people don’t buy big health covers, with most opting for a Rs 5 lakh plan, which is not adequate for critical illnesses. You should, therefore, have both the plans in your insurance kitty. “Regular health plans can be used for financing short-term medical expenses, while critical illness plans can be kept for financing long-term medical expenses and treatment,” says Rakesh Jain, CEO, Reliance General Insurance. Disease-specific plans: Apart from comprehensive critical illness plans, which cover a range of illnesses, there are some disease specific plans, such as those for heart and cancer ailments, in the market. Their premium is usually lower due to limited coverage.

Disease-specific plans

Pick one of these if you have a clear disposition to or a family history of the illness.


This is a sample, not a complete list of plans in the market. Premiums are inclusive of taxes, for a 35-year old male, non-smoker, for a cover of Rs 10 lakh. Source: ComparePolicy

You should consider these plans when you are aware of the predisposition to any particular hereditary ailment or lifestyle disorder. Otherwise, for most cases, comprehensive plans work better. “Diabetes, for instance, is a risk factor for heart-related conditions, strokes, as well as renal failure. In such situations, having a comprehensive critical illness plan is preferable to a standalone heart-related plan,” says Datta.

Leading causes of death in India

The top 3 killer diseases fall in the critical illness category and can be covered.

Coronary heart disease deaths : (13.7%)- Rs 12.15 lakh

Lung disease deaths : (11.9%)- Rs 10.62 lakh

Stroke deaths : (9.9%)- Rs 8.82 lakh

Figures for 2014. Source: World Life Expectancy

Incidence of cancer in India

Number of prevalent cancer cases : 38 lakh

New cancer cases added between 2012 and 2014 : 14 lakh

Cancer related deaths : 7 lakh

Source: National Cancer Registry Programme, Indian Council of Medical Research. Data for 2012-14

Things to consider before you buy

Cover size

To determine the optimal size of cover, first consider medical inflation, which is usually in double digits. “A cover that is 2-3 times the current treatment cost will take care of medical inflation for the next 10-15 years,” says Mukhopadhyay. Your current and future financial liabilities also play an important role. “Financial liabilities, such as a home loan and number of financial dependants, call for a higher coverage,” says Anuj Gulati, CEO, Religare Health Insurance.

As a thumb rule, your cover should not be less than Rs 10 lakh. Says Jacob: “For a person residing in a metro or tier-I city, the minimum sum insured should be Rs 10 lakh.” Other experts suggest going for a critical llness plan on the basis of your income and size of the regular health plan. “It should be 2 -3 times that of a basic health cover,” says Dhruv Sarin, Head, Health Insurance, Policybazaar. Deshpande, on the other hand, suggests a cover that is 3-4 times the annual income.

Illnesses covered

This is one of the most important things to consider. The number of illnesses covered can be as low as eight and as high as 37. A plan covering a higher number of illnesses may be the obvious choice, but be careful. “A single ailment may be split into different categories and shown as multiple ailments under a policy,” says S. Prakash, Senior Executive Director and Chief Marketing Officer, Star Health and Allied Insurance.

Hence, pay attention to different organ systems, such as heart, lung, gastro or neuro, not just the number of illnesses covered, which are given as a list of procedures. Apollo Munich Optima Vital, for instance, covers the highest number of illnesses (37), some of which are very rare, but has many procedures that are a part of one system. The key is to consult a doctor and check for the occurrence of these diseases.

Interpretations & definitions

While most critical illnesses have standardised definitions, there are various conditions in the coverage. All diseases have to be of a specified severity to be able to make a claim. For instance, failure of both kidneys is usually considered for a claim. For cancer, only a specified severity is considered, while skin cancer is excluded from most plans. In short, for most illnesses, the loss has to be total and irreversible. So check with your family doctor and understand these interpretations clearly.

Sub-limits

Some plans have sub-limits for a particular treatment. For instance, Star Criticare Plus policy has a sub-limit of Rs 1.5 lakh for a cerebrovascular accident, cardiovascular disease, cancer and renal complications for 60-65 year olds, while for all other major surgeries, the sub-limit is Rs 1.2 lakh. So, make sure you check the sub-limits for the disease that you have a predisposition to.

Renewability

Most critical illness plans are renewed annually. For longer-term policies, such as those for 2-3 years, the premium is renewed after this period. It may be prudent to buy a plan that offers lifelong renewability as the possibility of contracting a critical illness increases as one gets older. “A few plans, such as Max Bupa Health Assurance Critical Illness Plan, Bajaj Allianz Critical Illness Insurance and Star Criticare Plus Insurance Policy, offer lifelong renewability,” says Harjot Narula, CEO, ComparePolicy.

Exclusions

A critical illness plan usually covers a prelisted set of illnesses. Pre-existing conditions are usually not covered before a waiting period of 3-4 years. It is, therefore, important to go through all the exclusions. Some of the common ones include treatments arising from pregnancy or childbirth, HIV infection, AIDS and injuries.

Premium

As in basic health covers, the premium increases with age if the policy is standalone and taken from a general insurance company. For plans from life insurers, the premium remains the same throughout the period as it is attached to the base policy. Also, standalone plans are usually costlier than riders, but they also offer wider coverage. Go for the plan that best suits your requirements even if it means you have to shell out extra.

The SBI Critical Illness Insurance Policy, which covers 13 illnesses, comes for a premium of Rs 2,450 per annum, for a cover of Rs 10 lakh for a 35-year-old (non-smoker) male. The premium paid for health policies, including critical illness plans, also offer a tax deduction under Section 80D of the Income Tax Act. The maximum deduction available under this section is Rs 60,000 if you pay for your family and senior parents

Claim settlement ratio

It is the ratio of claims approved by the insurer to the total claims it receives. The higher the CSR ratio, the better the claims service. So, before you buy, ask the company about its CSR details over the years. Also ensure that you present all the health facts to the company before buying a plan. If you misrepresent or forget to mention any relevant information about your health, the claim could be rejected.

Defined plus indemnity benefit vs defined benefit

Typically, critical illness plans are defined benefit plans, which means that the claim is paid after the 30-day survival period and the policy ends. But there are some plans that combine both the benefits, defined as well as indemnity (hospitalisation expenses). One such example is Star Criticare Plus policy, but it also has the highest premium . “After one is afflicted with a critical illness, the person does not get health insurance at all. However, it is required even after that. So we provide both defined and indemnity benefits, which is why the premium is higher,” reasons Prakash. The indemnity plan continues though it doesn’t cover the illness for which the lump sum was paid. The basic policy is issued under a new name and the premium is proportionately lower.

Standalone or rider

Critical illness plans are available from both life and general insurance companies. While the former often offer these as riders to their base policies (say, a term plan), the latter offer it mainly on a standalone basis. Some may also offer it as a rider to the regular health plan.

The biggest difference between the two is the tenure of the policy. “Critical illness plans from life insurers are usually long-term products (10 years or more), while those from general insurers have a tenure of not more than three years,” says Sahni. You can, however, renew these plans after three years. Accordingly, the premium also varies. Life insurers offer a fixed and lower premium for the entire tenure of the policy, while general insurers offer a premium based on age, usually increasing with age. Independent plans may be expensive compared to riders, but also give better coverage.

Experts suggest going for a separate, standalone cover because it offers more flexibility. “You have the flexibility to choose a higher sum assured as per your requirement, whereas there is usually a cap in the case of a rider,” says Datta. “On the other hand, managing rider plans is more convenient as the renewal is clubbed with the base plan,” says Srinivasan Mahadevan, CEO, PlanCover. Ideally, if your basic indemnity cover is less, buy a separate standalone critical illness plan. “If you have a very high basic coverage, which would take care of most of your hospitalisation expenses, you may consider buying a rider to the base cover,” says Sahni.

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