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Critical Illness Insurance

What if someone was to tell you that its as important to have a policy for the replacement of your income when you are alive as when you are not? Think again.

Savita Nathawat

25 Sep 2008

We have often seen people buying insurance to replace their income after their death, but I have hardly heard about people buying insurance policy for the replacement of their income when they are alive.

Now there's the big question - why would I need income replacement when I am alive??

Have you ever given thought to circumstances such as critical illness and disability arising from them? Or the possibility of an accident where you might end up not being able to earn the money that you used to earn.

Before you hit retirement age, the chances of your falling critically ill are more than dying. It then follows that, as an earning member of society, you need to substitute your income in case you fall critically ill far more than if you were to die. Which would mean that in addition to your life insurance cover, (that provides for your family in case of your death) you need critical illness cover to replace lost income if you were to fall critically ill.

Latest data shows the number of people suffering from critical illnesses such as cancer, heart attack, and stroke is ever increasing. The cost of treatment for such diseases are galloping northward with no sense of proportion. So much so that people can go bankrupt trying to fund such costs.

Many insurance companies provide insurance to cover critical illnesses (illnesses mentioned specifically in the policy document). critical illness cover is provided by general insurance companies as individual policies whereas life insurers provide it as a rider attached to the life insurance policy.

The whole sum assured is payable lump sum in a specified number of days after the diagnosis of any critical illness specified in the insurance contract, ranging from 30 to 90 days.
If a person dies in the 30-90 days waiting period, nothing will be paid by insurance company. Surviving this period ensures the lump sum payment, which is tax-free. It doesn't matter if the insured recovers from the critical illness and is able and willing to work. It will have no effect on the payout. It thus is a survival benefit - you benefit if you survive the pre-decided post-diagnosis waiting period.

Before buying a critical illness cover from a life or non-life insurer, you should look at the illnesses covered by the policy. Buy a policy that covers the maximum number of frequently occurring illnesses or illnesses that run in your family. One note of caution - insurers often deny cover on the basis of family illness history, or ask extra premium.

Another question that should arise is: do you buy the critical illness rider on a life insurance policy or the separate non-life critical illness policy?

Standalone, non-life critical illness policies are year-on-year contracts - which means that the insurer might refuse to renew your policy as you grow older and more infirm.

The critical illness rider on a life insurance policy, on the other hand, is good for the entire tenure of the life cover specified in the policy.
Therefore, if you do not have life cover right now, or you are under-insured, take a term policy with critical illness cover.
If you have adequate life cover, go for the non-life critical illness policy.

Critical illness insurance is scrutinized on the basis of age, health history of individual and his/her family. If you are young and healthy, do not wait. Go and get adequate critical illness cover ensuring that neither you nor your family suffers from income loss or huge treatment expenses. And yes, tax benefits via Section 80 (D) on premium paid.