Important things to consider before finalising your critical illness cover

If you are planning to purchase critical illness coverage, it is important to consider various cost factors.

Important things to consider before finalising your critical illness cover

The health insurance sector in India is estimated to grow by an impressive CAGR of 29% between 2021 and 2025. The rising number of individuals suffering from chronic diseases, steep hike in the cost of healthcare, increasing cases of deaths due to road accidents, and greater awareness created by insurers and regulators are some of the driving forces behind the growth of health insurance in the country. 

The emergence and spread of the global pandemic in 2020 have only served to accelerate the adoption of health insurance among Indian consumers. But apart from health insurance, consumers have also started warming up to critical illness coverage, especially since occurrences of critical illnesses are increasing in India. 

According to a study conducted by the Indian Council of Medical Research (ICMR), it was estimated that more than 17 lakh cases of cancer would emerge by the end of 2020. The Global Burden of Diseases study reveals that 60% of deaths in India occur due to critical illnesses such as cancer, cardiovascular diseases, liver diseases, kidney diseases, and lung diseases.

The average cost of treatment for these diseases can range from Rs 3.5 lakh to Rs 20 lakh. Further details are given below:

Type of critical illness

Average cost of treatment

Kidney disease Rs 10 lakh onwards till transplant occurs
Liver disease Rs 18 lakh
Cancer Rs 5 lakh to Rs 10 lakh in a private hospital
Lung disease Rs 20 lakh
Cardiovascular disease Rs 3.5 lakh

These costs are indicative and in certain cases could go up to a crore or more.

Apart from these costs, one must also consider various other factors before choosing a critical illness coverage.

Related: Critical illness rider: A must for Indians

Things to consider before selecting critical illness coverage

  • Loss of income: It is likely that when you suffer from a critical illness, you wouldn’t be in a position to work. This would impact your income. However, your expenses won’t stop. If you have financial dependents or are the sole income earner, loss of income would not only be detrimental for your treatment but also for the aspirations of your family.
     
  • Increasing cost of healthcare: Cost of healthcare expenses in India has been rising at a rate double that of retail inflation. As we saw, the cost of treatment for critical illnesses is substantial for a middle class family. Due to healthcare expenses and treatment costs, critical illness could lead to financial ruin.
     
  • Higher professional charges: Critical illness will often require the opinion of an expert doctor whose consultation charges might be either on an hourly basis or per visit. This can often comprise a substantial part of the total cost of treatment. 
     
  • Unavoidable EMIs: You may have taken loans to purchase property or a vehicle. If the property and vehicle are indispensable, the EMI you pay for them could be considered as unavoidable. Defaulting on an EMI would hurt your credit score and make it difficult for refinancing the loan or apply for other loans. You need to calculate the pending EMIs and ensure that the total amount is accounted for while purchasing a critical illness cover.
     
  • Existing family liabilities: Check with your spouse or other family members to be sure that you haven’t missed any liabilities or a significant upcoming expense. Liabilities could include a credit card bill that has a higher rate of interest on default, or a personal loan that one might not be aware of. Transparency about family liabilities is the only way to ensure that one can opt for an adequate cover.
     
  • Livelihood expenses: The average inflation[10] rate in India has been around 7% over the previous decade. Hence, you may not only have to consider your livelihood expenses but also the impact of inflation on the same. These would include expenses towards rent, groceries, entertainment expenses, conveyance expenses, utilities etc.
     
  • Ongoing investments: You may have ongoing mutual fund SIPs as well as other investments. This is likely to be a fixed amount every month unless you have created a step-up mechanism. Investing for the long term enables you to take advantage of compounding and create wealth. 
     
  • School/college fees: No parent would want the education of their child to suffer, especially in an uber-competitive world. The overall value of cover should be decided based on the regular and fixed expenses for school or college, such as annual fees or expenses related to books or boarding, plus private tuition fees (if any).
     
  • Wedding in the family: Weddings are memorable occasions for almost every Indian. It is a tradition to celebrate a wedding in the best possible way and people usually spend a good chunk of money. If you have taken the responsibility to manage the wedding expenses of a sibling or your son or daughter, you could factor this expense as well.

Related: Is your Health Insurance plan adequate to cover critical illness?

Handy way to calculate the coverage needed

  • Unavoidable expenses: Assume that you have unavoidable expenses (such as EMIs, school/college fees for your child) which work out to Rs 60,000 per month for the next five years. This means you would incur 60,000 x 12 x 5 = Rs 36,00,000 over the next five years.
     
  • Cost of healthcare: To be safe, it is recommended to consider Rs 50 lakh as cost of treatment for a critical illness over the next five years.
     
  • Adjustable expenses: If your existing cost of living is around Rs 30,000, your family and you could try to reduce it. Let us assume that you would be able to reduce it to Rs 20,000 per month. Assuming inflation of 10% over the next five years, you could consider an average of Rs 24,420 per month for the next five years. This means you would incur an expense of Rs 14,65,200 over the next five years.
     
  • Additional earning member: There might be another member in the family (such as your spouse) who could earn Rs 50,000 per month. This means you would be able to enjoy an income of Rs 30,00,000 over five years (without accounting for salary hikes or bonuses).
     
  • Emergency corpus: You may even have an emergency corpus of Rs 10 lakh. Your critical illness coverage can be = (Unavoidable expenses + Cost of healthcare + Adjustable expenses) – (Earnings from family member + Emergency corpus) = Rs 36,00,000 + Rs 50,00,000 + Rs 14,65,200 – (Rs 30,00,000 + Rs 10,00,000) = Rs 60,65,2000 

Last words

Although India remains one of the cheapest countries with respect to healthcare cost, a critical illness could lead to financial distress. A critical illness coverage helps a family deal with the uncertainty of life without worrying about the costs. By considering all these various factors, one can purchase a critical illness plan with suitable coverage. 6 Tips to follow while buying a critical illness policy.

Related Article