We have spoken at length in articles here about the importance of being adequately covered by both life and medical insurance. If you have been around looking for a policy, you would have encountered something else as well – a ‘Critical Illness Cover’, being sold as an add-on to either of these policies.
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First of all, what is a ‘Critical Illness Cover’?
While the implication of a Critical Illness Cover might vary from insurer to insurer, it generally refers to a tax-free lumpsum being paid out to the insured person in case any of the pre-defined ‘critical illnesses’ affects him or her.
The number and variety of conditions covered differs widely from insurer to insurer, but there are seven core conditions that tend to be covered by all critical illness policies. These are cancer, coronary artery bypass, heart attack, kidney failure, major organ transplant, multiple sclerosis and stroke. Permanent disability caused by illness or injury is also usually covered by most policies.
What is the implication of this?
In a single line – this means that if, God forbid, you are affected by any of these diseases or conditions, which severely impact your ability to earn a living for yourself and family, the insurance company will pay you this sum.
In India, the ‘Critical Illness Cover’ is usually a percentage of the total insured amount, so on a 50 lakhs cover with 50% CIC, the pay-out would be 25 lakhs.
Sometimes, the insurer offers a monthly or quarterly payout instead of a lump sum payment – this is basically an income-protection plan, however, and not, strictly speaking, a CIC.
Another important aspect of the CIC is that there is no restriction on what the lump-sum payout can be used for. While the most obvious use would appear to be for payment of medical costs, if you are separately insured for that as medical insurance, you are free to use the CIC payout to pay off outstanding debts (so that they do not burden your family after you are gone) or invest it wisely to replace your income.
It is worth remembering that CIC is separate and distinct from a regular medical insurance cover. It should not be treated as a replacement for medical insurance, which is a necessity and covers a much broader spectrum of diseases and conditions. In fact, it is over and above the medical insurance, giving you financial stability and not just payment of medical expenses.
So, do you really need it?
As always, the answer depends on a few factors.
- First of all, look at the fine print. Not all CIC policies are equal. Some of them cover very few conditions, others create too many ‘escape clauses’ that allow the insurance company to get away without making the payout. See if the terms are fair and generous.
- CIC will not cover pre-existing conditions (most Health policies do not either). So ensure you have disclosed everything about your health and pay the higher premium this entails rather than trying to hide it.
- Is there a family history of the illnesses covered? If you come from a family that typically has suffered from these conditions, it makes sense to go for a CIC since the probability of needing it is higher.
- If your spouse is earning well, a CIC might not help so much, and it might then make more sense to go for a higher Life and Medical cover so that any condition affecting you is income-neutral for him or her.
By and large, unless there is a family history of critical illness or your job involves a high risk of accidental death, it might not be worth the high premium charged. In other cases, it make more sense to take a higher Life cover. In all cases, do ensure you read the fine print closely and know what you are going in for.
There is, in the end, no easy answer to the headlining question. We have tried to give a frame of reference here, but ultimately you should balance the cost of the premium against the potential benefits.