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Health Insurance

Is your Health Insurance plan adequate to cover critical illness?

06 November 2015
Health and critical illness are separate categories and each has its own place in a consumer’s insurance requirement. Here’s a simple guide to knowing how to choose between the two, or decide if you need both.
 

It was a late Sunday afternoon and I was feeling perplexed.

Researching the best antivirus software, I got so confused about various terminologies that I closed my laptop and went to a friend’s house, an IT guy, for a cup of coffee. In the course of our conversation, while he was enlightening me on the antivirus bit, I came to know he had a similar woe, except that it pertained to insurance.

He was planning to buy insurance for his family, but was all confused between health and critical illness insurance: whether to combine both, buy them separately, or not buy them at all.

I decided to help my friend and enlighten him on the difference between both policies and what is right for him. Here’s what I told him.

Health and mediclaim policies: How similar, how different?

First of all, let us understand the fundamental point that within the broad non-life segment of insurance, health and critical illness are different categories of insurance. Both kinds of policies are sold by non-life insurance companies.

Related: Critical Illnesses and their Financial Implications in India [Infographic]

Speaking first of health insurance, it is an “indemnity” based insurance which reimburses the actual cost of hospitalisation expenses in case you are admitted to a hospital. When we speak of indemnity based cover, it means that for whatever amount of policy (sum assured) you have taken, your insurer will reimburse you only to the extent of the actual cost or expense that you’ve incurred & nothing more.

As against this, critical illness insurance is a “fixed benefit” insurance cover. Unlike health insurance, here there is no mandatory requirement of hospitalisation to make a claim. As soon as you are diagnosed with a specified critical illness having a specific severity level as defined in the policy terms and conditions, your insurer is bound to release the sum assured to you in one go, irrespective of whether you’ve spent even a single rupee on treatment of illness or not.

Also, there is no restriction on the usage of the money: it can be used to pay off any outstanding loans, fund financial goals or create an investment income stream to meet future household & living expenses.

Related: Have an outstanding loan amount? Get equivalent life cover

A table showing the difference between both kinds of insurance covers is given below for better understanding:

Particulars

Health

Critical Illness

Cover Type

Indemnity based

Fixed Pay-out Benefit

What is covered

Hospitalisation costs, pre & post hospitalisation, domiciliary treatment, day care procedures etc.

Fixed sum payable in case of diagnosis of a critical illness

Trigger for claim

Hospitalisation exceeding 24 hours

First diagnosis of critical illness with specific severity

Available as rider in life insurance policies

No

Yes

Policy status on payment of claim

Continues. Can be renewed next year.

Stands terminated as soon as claim is paid.

End use of claim proceeds

In case of cashless, it is paid directly to the hospital to settle the bill. No restriction in case of re-imbursement based claim payout

No restriction

 Related: Your health is an asset. Have you covered it well?

As a consumer, what should be your approach?

First things first, since health and critical illness address different needs of a policyholder, there is a place for both in a person’s insurance portfolio. Having said that, given that hospitalisation is far higher on a probability scale than a critical illness, especially  assuming the policyholder is young and fit, while having your own health insurance is a “must have”, a critical illness can be said to be a “good to have”.

IRDAI Health Insurance Regulations in 2013 standardised a lot of the terms, conditions and clauses used in these policies across insurers, which is a big plus for the consumer and makes the task of choosing policies offered by various insurers a lot easier.

It is also observed that some life insurance policies offer critical illness cover as a rider. Generally, the premium for a Critical Illness rider is lower than the premium for a standalone Critical Illness policy. This is because the standalone policy generally offers more features and more comprehensive coverage than the rider, though it may differ from insurer to insurer.

Some health insurance policies available in the market bundle a critical illness cover with health insurance. While it seems like a good idea to buy one policy covering both requirements, that should not be the only deciding factor: policy features and premium should be compared thoroughly before signing up for such policies.

Related: Group health insurance vs individual health insurance: which one do you need?

Conclusion

Health and critical illness are separate categories and each policy has its own place in a family’s overall insurance requirement. It is a wise approach to first define your familial requirements, then compare across insurers and select the best available policy in each of the categories of insurance to help secure you and your family’s future from unforeseen medical contingencies.

 
 
 
 

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