Critical Illness Insurance Policies: Do You Really Need One?

Radhey Sharma* who blogs at The Wealth Wisher recently compared critical illness insurance policies in India. The following is an expansion of my comment to his post.

* He used to. It is now run by Madhupan Krishna.

What is CI insurance? It offers a lump sum if the insurer is convinced that an individual has any one of critical illness listed in the policy document. The payment is made when the individual survives a certain period (typically a month) after confirmation of the diagnosis.

What you should know before you consider buying a CI policy: Yes the idea of a CI cover does sound good. However on closer inspection things are not so rosy.

Term insurance policies pay on the death of the insured. One year after policy inception it pays for death irrespective of the nature of death. If one doctor proclaims a man dead, what are the chances that another doctor is going to disagree?!

Health insurance policies pay on hospitalization, except for a small subset of treatments listed in the policy document. If the hospital says the insured person is/was a patient, what are the chances that the insurer is going to dispute it?!

Critical illness policies pay when a critical illness is diagnosed established. Once your doctor confirms an illness ‘listed’ in the policy document, the doctors who work for the insurer have to concur that the nature of the illness falls in line with the policies definition of 'critical'. If they don’t concur (I would expect them to try hard not to!), no payment will be made.

According to Ramesh Mangal (a doctor and personal finance enthusiast), insurers have a narrow definition of many critical illnesses.  So there is absolutely no guarantee that even if a person is diagnosed with an illness listed in the policy document, he will receive the sum insured.

Photo by Catherine (Flickr)
Photo by Catherine (Flickr)

Financial planner Manikaran  Singhal made the following comment in another CI cover related article in The Wealth Wisher blog:

“I was a big fan of Critical illness policy and used to advise all my clients until I understood the Criticality aspect through the policy wordings. Some are as below

Kidney Failure requiring Regular Dialysis: End stage renal disease presented as chronic irreversible failure of both kidneys to function, as a result of which either regular renal dialysis (haemodialysis or peritoneal dialysis) is instituted or renal transplantation is carried out.

First Heart Attack of Specified Severity: The first occurrence of myocardial infarction which means the death of a portion of the heart muscle as a result of inadequate
blood supply to the relevant area.

All the conditions are related to some specific severity. I discussed this with one of my doctor friend to which he replied that in these health conditions there are very few chances that they discharge the patients and also there is very rare chance of the patient to survive.

Now this means that as long as he’s in a hospital, he has to bear hospitalisation cost. Thus for him hospitalisation cover is more important then Critical Illness. and moreover as CI policy is a fixed benefit plan, so I generally feel that one should continue with the cover only till he doesn’t accumulate the same amount in “Health benefit fund”. So now I am not in favour of critical illness plan.

Bottomline:  Critical Illness insurance is not an umbrella cover like term insurance, health insurance or even accident insurance. CI policies come with two kinds of fine print. One that is visible but hard to understand (like all policies) and one that is visible only to the team that evaluates claims!

Do you need one? Are you better off using the premium and other resources to build yourself a good medical corpus? Are you better off regularly contributing to your emergency fund? Answers will depend on your personal situation.

Before even thinking about buying a CI cover:

  •  Check your family history for critical illness. If you can find any, then determine the age at which the illness surfaced. If there is a history of illness at a young age,then you will need to take a CI cover right away. The cover should include the illnesses present in your family history.
  • If the age of CI onset in your family is pretty late then you could consider building a medical corpus instead of a CI policy (of there is a risk involved in this as no one can predict the onset of CI and not all CIs have a genetic predisposition).
  • Such a risk can be mitigated to an extent if
    • there is enough emergency fund - preferably at least a years worth of expenses to start with.
    • you take stock of your financial situation and check if you can allocate some funds to a medical corpus immediately.
    • you plan to contribute to  both funds regularly

DNA Testing: Whether there is a history of illness or not, you could consider a DNA test to determine the (approximate) probability of contracting certain diseases. This will help us mentally and fiscally prepare for the future.

  • Google’s co-founder, Sergey Brin, has a 50% chance of getting Parkinson’s disease.
  • Angelina Jolie decided to get a preventive double mastectomy based on such DNA testing. Here is a good read about this
  • In India, Bioaxis DNA Research Centre offers this service
  • Any such test will have its own limitations.
  • One requires tremendous courage to get the test done and face results. Typically family members would be against such testing.
  • Cost: Ballpark, Rs. 15K -25K.
  • There is no need to mention results to any insurer.

Personally, I find the CI policy a little too complicated. I am focussed on increasing my families health cover as much as possible each year and establishing a medical corpus.

If you think a CI cover is important for you, then you could read this article for help in choosing a policy.What do you think?

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39 thoughts on “Critical Illness Insurance Policies: Do You Really Need One?

  1. amisandip2013

    I agree with you. Instead of CI policy, it is wiser to focus in creation of a Health Benefit Fund or a higher Emergency Fund.

    Reply
  2. amisandip2013

    I agree with you. Instead of CI policy, it is wiser to focus in creation of a Health Benefit Fund or a higher Emergency Fund.

    Reply
  3. ashalanshu

    bang on Target pattu. I was also a blind fan of CI earlier. later on one person discussed it in details within my FB group & after knowing the loopholes which can be exploited by the Insurer. I'm No more advising CI. A high health cover in general policy + health benefit corpus is the way forward.

    Thanks

    Ashal

    Reply
  4. ashalanshu

    bang on Target pattu. I was also a blind fan of CI earlier. later on one person discussed it in details within my FB group & after knowing the loopholes which can be exploited by the Insurer. I'm No more advising CI. A high health cover in general policy + health benefit corpus is the way forward.

    Thanks

    Ashal

    Reply
  5. bharat shah

    thank you for informative, analytical and suggestive post on the subject and additional information of DNA testing with cost.
    one more thing , i noticed , in Critical Illness Rider with Term Insurance from Kotak that the sum insured for life cover would reduce by the a/m of CI availed. So the premium of CI rider should be considered as the sum of CI rider premium plus the basic life insurance premium .

    Reply
  6. bharat shah

    thank you for informative, analytical and suggestive post on the subject and additional information of DNA testing with cost.
    one more thing , i noticed , in Critical Illness Rider with Term Insurance from Kotak that the sum insured for life cover would reduce by the a/m of CI availed. So the premium of CI rider should be considered as the sum of CI rider premium plus the basic life insurance premium .

    Reply
  7. AyushP306

    I too find Critical Illness policy wordings way too complicated. Some of the policy wordings i have read are horrible. I will not mention the name of the company but most of them have some degree of similarity in their policy wordings. I also agree with building a good medical corpus instead of relying on a Critical Illness policy. I like the point about DNA testing. My family thought about going for it long time back but didn't do it. May be if i have the opportunity in future, i would do it. 🙂

    Reply
  8. AyushP306

    I too find Critical Illness policy wordings way too complicated. Some of the policy wordings i have read are horrible. I will not mention the name of the company but most of them have some degree of similarity in their policy wordings. I also agree with building a good medical corpus instead of relying on a Critical Illness policy. I like the point about DNA testing. My family thought about going for it long time back but didn't do it. May be if i have the opportunity in future, i would do it. 🙂

    Reply
  9. pankaj

    I too agree with you guys but I believe that life is also complicated but we don't stop living it, market linked plans are also not that easy to understand but still we do it. We are talking about keeping a corpus for health issues but who will put guarantee that the illness will not happen in near future. If we are sure that nothing is going to happen before a certain point of time then we are God and we do not require any security so as life insurance and other things as well. As far as complications are concerned I agree but the solution to that is to make the awareness instead of discouraging people to buy CRITICAL ILLNESS SECURITY. We are responsible for the job we do and if you tell the clients all the pros and cons of a plan chances of regretting can be minimized. In today's world when people are diagnosed with cancer and heart attack in the age of 15 to 30, what probability are we talking about. Instead of talking negative we should learn more and make the client understand the value of security. We don't have a choice between Good luck or bad luck, it just happens. Isn't it? Do the right job, now and always.

    Reply
    1. pattu

      Hi Pankaj, Thanks for sharing your views. I am not trying to discourage people from buying CI cover. I am merely pointing out that buying a CI cover does not imply the same kind of security a term or health insurance. Considering that CI cover is only a few lakhs, if an individual can arrange to put together a medical corpus in a few years then he does not need CI cover. If he cannot or will not(!) he needs a CI cover.

      The problem is most financial planners blindly recommend CI policies without knowing the intricacies involved.

      Reply
  10. pankaj

    I too agree with you guys but I believe that life is also complicated but we don't stop living it, market linked plans are also not that easy to understand but still we do it. We are talking about keeping a corpus for health issues but who will put guarantee that the illness will not happen in near future. If we are sure that nothing is going to happen before a certain point of time then we are God and we do not require any security so as life insurance and other things as well. As far as complications are concerned I agree but the solution to that is to make the awareness instead of discouraging people to buy CRITICAL ILLNESS SECURITY. We are responsible for the job we do and if you tell the clients all the pros and cons of a plan chances of regretting can be minimized. In today's world when people are diagnosed with cancer and heart attack in the age of 15 to 30, what probability are we talking about. Instead of talking negative we should learn more and make the client understand the value of security. We don't have a choice between Good luck or bad luck, it just happens. Isn't it? Do the right job, now and always.

    Reply
    1. pattu

      Hi Pankaj, Thanks for sharing your views. I am not trying to discourage people from buying CI cover. I am merely pointing out that buying a CI cover does not imply the same kind of security a term or health insurance. Considering that CI cover is only a few lakhs, if an individual can arrange to put together a medical corpus in a few years then he does not need CI cover. If he cannot or will not(!) he needs a CI cover.

      The problem is most financial planners blindly recommend CI policies without knowing the intricacies involved.

      Reply
  11. virenblogs

    Thank you Pattu... Few weeks back, I was searching for some CI policy and then tumbled upon a discussion between Ashal and other JI reader. The comments from Ashal and the calculations made by the reader has really helped me...

    Thanks
    Viren (www.iamnospecial.wordpress.com)

    Reply
  12. virenblogs

    Thank you Pattu... Few weeks back, I was searching for some CI policy and then tumbled upon a discussion between Ashal and other JI reader. The comments from Ashal and the calculations made by the reader has really helped me...

    Thanks
    Viren (www.iamnospecial.wordpress.com)

    Reply
  13. Rajesh

    I don't find any exclusive 'Critical Illness' policies in Indian Market.
    CI coverage is provided in Term Policy coverage or in a family floater.

    Can you specify any few policies which are exclusive 'Critical Illness' policies?

    Reply
  14. Rajesh

    I don't find any exclusive 'Critical Illness' policies in Indian Market.
    CI coverage is provided in Term Policy coverage or in a family floater.

    Can you specify any few policies which are exclusive 'Critical Illness' policies?

    Reply
  15. sid

    After reading this article i feel it is better to go for a super top-up mediclaim plan. for example L&T super topup cost about 2.5k for 25L for a person under 35 years with a deductible of 5L

    Reply
    1. pattu

      Mediclaim will help to a certain extent. However it is best to start investing to create a medical corpus.

      Reply
  16. sid

    After reading this article i feel it is better to go for a super top-up mediclaim plan. for example L&T super topup cost about 2.5k for 25L for a person under 35 years with a deductible of 5L

    Reply
    1. pattu

      Mediclaim will help to a certain extent. However it is best to start investing to create a medical corpus.

      Reply
  17. Anish Mohan

    Dear Pattu-Sir, I know that you never comment on Life Insurance specific product. So, I will not ask for any product review. But recently, a reputed Life Insurance company has launched a Cancer Care plan where you would be paid a lump sum on detection of cancer. Since cancer is the largest killing agent to affect India arising out of lifestyle changes, pollution and myriad causes, coupled with the fact that cancer treatments are the costliest amongst all critical illness(probably beyond the medical insurance). Therefore, your readers would benefit to know if a cancer care plan will suit the purpose rather than taking a plain vanilla CI plan.

    Reply
  18. Anish Mohan

    Dear Pattu-Sir, I know that you never comment on Life Insurance specific product. So, I will not ask for any product review. But recently, a reputed Life Insurance company has launched a Cancer Care plan where you would be paid a lump sum on detection of cancer. Since cancer is the largest killing agent to affect India arising out of lifestyle changes, pollution and myriad causes, coupled with the fact that cancer treatments are the costliest amongst all critical illness(probably beyond the medical insurance). Therefore, your readers would benefit to know if a cancer care plan will suit the purpose rather than taking a plain vanilla CI plan.

    Reply
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  20. Manish Jain

    Would you kindly comment or bring out a post in future that deals with cover for congenital illnesses. IRDA guidelines make it necessary for insurance companies to cover these, but they often don't!

    Reply
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  23. Rahul

    Sir, I am just amazed by the amount of information that you share in internet. Through AIFW or here, you are just churning out tremendous amount of knowledge.
    I never understood anything in personal finance till a year back or so. But now, if I know something, that is because of people like you.
    I started to see investment and insurance separately. Was amazed to find out there are various types of insurances: health/medical insurance, critical illness insurance, accident insurance and so on.
    This is a new knowledge to me. I didn't had any financial plan till few months back. But after reading many of your posts, I understand its importance. You are great.

    I sat down and wrote everything related to my family finances and today I am in a better position (at least I think I have control over the controllable things).

    Thanks a lot again to you. There are lot more things to learn. I don't know still many things. I am in the process of understanding things around.

    Reply

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