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What is Critical Illness in Term Insurance Policy?

A critical illness in term insurance offers a lump-sum payout upon diagnosis of covered conditions, providing financial security during challenging times.

  • 9,030 Views | Updated on: May 13, 2024

A critical illness in term insurance policy is a specialized insurance plan crafted to offer financial security to the policyholder in the event of a diagnosis of a severe illness or medical condition outlined within the policy. Such illnesses commonly encompass major conditions known to impact one’s health and well-being significantly. Examples include cancer, heart attack, stroke, organ transplant, kidney failure, and other life-threatening diseases.

The primary purpose of a critical illness in term insurance is to provide a lump-sum payment to the policyholder upon the diagnosis of a covered illness. This lump sum can be utilized to cover various expenses associated with the illness, including medical treatments, hospital bills, rehabilitation costs, household expenses, and other financial obligations. By offering this financial cushion, critical illness policies aim to alleviate the monetary strain often experienced during times of severe illness.

Key takeaways

  • The need for critical illnesses is increasing, leading to potential financial difficulties such as high treatment costs and loss of income.
  • It provides additional funds beyond what health insurance may cover upon diagnosis of covered conditions.
  • While health insurance covers a wide range of medical expenses and ongoing healthcare costs, critical illness in term insurance focuses on providing financial support for specific critical illnesses.
  • Certain conditions/treatments are not covered, such as congenital diseases, self-inflicted injuries, mental disorders, and alternative medicine treatments.
  • Always determine the appropriate coverage amounts based on financial needs, compare premiums, and consider long-term affordability.

As modern living becomes stressful, coupled with unhealthy eating habits, there is a rise in the number of people being affected by such critical illnesses. You may also face financial difficulties due to loss of income and high treatment costs. To protect yourself and your family from financial difficulties during an emotionally stressful situation, it is important to avail yourself of a critical illness in term insurance.

How Does Term Insurance With Critical Riders Work?

Term insurance with critical illness riders offers comprehensive financial protection against both death and serious health crises. This combination of coverage provides policyholders and their families with peace of mind, knowing that they are safeguarded against the financial burdens that can arise from unexpected life events.

Let’s delve into how term insurance with critical riders works:

Term Insurance Basics

Term insurance is a type of life insurance policy that provides coverage for a specified period, known as the term. If the insured individual passes away during the term of the policy, a death benefit is paid out to the beneficiaries. However, if the insured survives the term, no benefits are paid out, and the coverage typically expires.

Critical Illness Rider

A critical illness rider is an add-on feature that can be attached to a term insurance policy for an additional premium. This rider provides coverage for specified critical illnesses, such as cancer, heart attack, stroke, organ failure, and major surgeries. If the insured is diagnosed with a covered critical illness during the term of the policy, a lump-sum payout is made, irrespective of whether the insured survives the illness or not.

How it Works?

When you purchase term insurance with a critical illness in term insurance rider, you pay a single premium for both components of the policy. The term insurance provides coverage for death benefits, while the critical illness rider offers protection against the financial impact of severe health conditions.

Term insurance with critical illness in term insurance riders operates on a dual benefit structure, offering coverage for both mortality risk and critical illness risk under a single policy. Policyholders have the flexibility to choose the sum assured for both components based on their individual needs and financial goals. In the event of the insured’s demise during the policy term, the death benefit is paid out to the nominee(s) as per the terms of the term insurance policy. On the other hand, if the insured is diagnosed with a covered critical illness in term insurance during the policy term and survives the specified survival period (usually 30 days), the critical illness rider benefit is triggered, and a lump sum amount is paid out to the insured to address the financial repercussions of the illness.

Benefits of a Critical Illness Policy

If you have ever contemplated the potential repercussions on your family if you were unable to earn an income due to a serious medical condition, you likely recognize the paramount importance of critical illness in term insurance. This specialized form of insurance offers a range of invaluable benefits, each serving to safeguard both you and your loved ones during times of adversity. Here’s a closer look at the significant benefits provided by critical illness in term insurance:

Financial Protection

A critical illness policy offers a lump-sum payment upon the diagnosis of a covered critical illness in term insurance. This financial assistance can be instrumental in covering medical expenses, treatment costs, and various other financial obligations such as mortgage payments, household bills, or childcare expenses.

Flexibility

The lump-sum payment received from a critical illness policy grants policyholders unparalleled flexibility in its usage. They have the autonomy to utilize the funds for medical treatment, rehabilitation, lifestyle adjustments, or any other expenses arising due to the illness, ensuring tailored support based on individual needs.

Supplement to Health Insurance

While health insurance typically covers medical expenses, it may not suffice to cover all costs associated with a critical illness. A critical illness in term insurance serves as a supplement to health insurance by offering additional funds to cover out-of-pocket expenses, experimental treatments, or other non-medical costs.

Income Replacement

In many instances, a critical illness in term insurance can render individuals unable to work for an extended period. The lump-sum payment from a critical illness policy serves as a vital source of income replacement during this time, enabling the policyholder and their family to maintain their standard of living.

No Restrictions on Use

Unlike certain other types of insurance, critical illness policies generally impose no restrictions on how the funds can be utilized. Policyholders retain full control over allocating the money to meet their specific needs and priorities, ensuring personalized support tailored to their circumstances.

Tax Benefits

In addition to offering financial protection, critical illness policies provide tax benefits to policyholders. The premiums paid towards the policy are eligible for tax deductions under Section 80D of the Income Tax Act, 1961, thereby incentivizing individuals to invest in their health and well-being.

Affordable Premiums

Despite furnishing comprehensive coverage and substantial financial protection, critical illness policies are renowned for their affordability. With competitive premiums and flexible payment options, these policies ensure that individuals from diverse backgrounds can access the benefits of comprehensive health coverage without burdening their finances.

Difference Between Critical Illness in Term Insurance and Health Insurance

When navigating the realm of insurance options, individuals often encounter a variety of plans, including pure health insurance and critical illness in term insurance. While these plans may seem similar at first glance, they serve distinct purposes and offer different types of coverage. Let us take a quick look at how they differ from each other:

Feature

Critical Illness Insurance

Health Insurance

What it Covers

Specific critical illnesses like cancer, heart attack, stroke, etc.

Wide range of medical expenses, including doctor visits, hospitalization, surgery, prescriptions, etc.

Benefit payout

Lump sum payment upon diagnosis of a covered critical illness

Covers a portion (usually a percentage) of approved medical bills

Purpose

Provides financial support to cover out-of-pocket medical costs, lost income, or debt repayment due to a critical illness

Helps manage ongoing medical expenses and protects against unexpected high medical bills

Premiums

Generally higher premiums due to the specific coverage and potential for large payouts

Premiums vary depending on plan type, deductible, and coverage level

Claims process

Typically easier claims process with clear criteria for covered illnesses

Claims process can be more complex and may involve denials based on policy exclusions

Focus

Financial protection in case of a critical illness

Managing ongoing healthcare costs

Difference Between Critical Illness Cover and Disability & Accidental Cover

Understanding the differences between critical illness in term insurance coverage and disability & accidental cover is crucial for individuals seeking to protect themselves and their families from unforeseen health-related challenges. While critical illness in term insurance cover focuses on providing financial support upon diagnosis of specific severe illnesses, disability & accidental cover offers protection against disabilities resulting from accidents or illnesses, ensuring continued financial stability during difficult times.

Feature

Critical Illness Cover

Disability & Accidental Cover

Purpose

Provides financial protection upon diagnosis of specific critical illnesses

Offers financial support in case of disability or accidental injury causing inability to work

Coverage

Covers a predetermined list of critical illnesses such as cancer, heart attack, stroke, etc.

Covers disabilities caused by accidents or illnesses, including partial or total disability

Nature of Conditions

Typically focuses on severe illnesses that can have a significant impact on one’s life and ability to work

Covers a broader range of conditions, including temporary or permanent disabilities resulting from accidents or illnesses

Premiums

Generally higher premiums due to the specific coverage for critical illnesses

Premiums may vary based on the level of coverage and the individual’s risk profile, but often lower than critical illness cover

Duration of Coverage

Typically provides coverage until the policyholder reaches a certain age or until the policy is terminated

Can be short-term or long-term depending on the policy terms, offering coverage for a specified period or until retirement age

Claim Process

Requires submission of medical reports confirming the diagnosis of a covered critical illness

Requires documentation proving the disability or accidental injury and its impact on the insured’s ability to work

Inclusions Under Critical Illness Plans

Critical illness in term insurance is designed to offer comprehensive financial protection against a range of severe medical conditions, providing policyholders with peace of mind during challenging times. While the exact list of covered illnesses may vary depending on the specific plan and insurance company, most critical illness in term insurance plans encompass a wide array of critical illnesses. Here’s a closer look at critical illness coverage:

Types of Covered Conditions

Major Cancers: Different stages of cancer are often covered, with some plans specifying the severity.

Heart Diseases: This can include heart attack, coronary artery bypass surgery, and valve replacement surgery.

Stroke: Some policies also cover stroke resulting in permanent neurological damage.

Organ Failure: This can include kidney failure requiring dialysis, liver failure, and lung failure.

Major Organ Transplants: Coverage may extend to bone marrow transplants as well.

Neurological Conditions: Some plans cover conditions like Alzheimer’s disease, Parkinson’s disease, and motor neuron disease.

Musculoskeletal Conditions: Critical illness plans may cover certain severe musculoskeletal conditions like permanent paralysis of limbs.

While critical illness insurance plans typically offer coverage for a range of serious medical conditions, it’s essential to recognize that various insurance companies may include additional conditions in their coverage. To ensure you have a clear understanding of your policy’s terms and avoid any unpleasant surprises in the future, it’s crucial to read the policy document carefully. Here’s why:

Exclusions Under Critical Illness Plans

Critical illness insurance plans are designed to provide comprehensive financial protection against a wide range of serious medical conditions. However, it’s essential to be aware that certain illnesses may not be covered under a critical illness insurance plan. Here’s a closer look at some conditions that may be excluded from coverage:

  • Any diseases causing the demise of the insured during the specified survival period assessed from the onset of the condition.
  • Any medical operation or treatment that is not medically necessary or is not administered by a medical practitioner.
  • Any congenital diseases or conditions.
  • Any covered critical illness resulting from birth control treatments and/or hormone replacement therapy, as well as any sequelae.
  • Any treatment/surgery for gender transition or aesthetic surgery, as well as any complications/illness resulting from such treatment/surgery.
  • Other covered critical illnesses resulting from treatment by a family member and self-medication or any treatment that is not scientifically recognized.
  • Any covered critical illness resulting from treatment with alternative medicines such as Ayurvedic, Homeopathy, Unani, acupuncture, acupressure, osteopathy, naturopathy, chiropractic, reflexology, aromatherapy, and the like, as well as any complications developing from there.
  • Suicide attempt (sane or mad) or intentionally self-inflicted injury or illness
  • Sexually transmitted diseases, mental or nervous disorders, Acquired Immune Deficiency Syndrome (AIDS), and HIV infection

Who Must Avail Critical Illness Cover?

Critical illness coverage is a vital form of insurance that offers financial protection in the event of a severe illness diagnosis. While it’s not obligatory for everyone, there are specific groups of individuals who could significantly benefit from having this coverage. Here are some key groups who should consider availing critical illness coverage:

Solo Earner

For individuals who serve as the sole breadwinners of their families, critical illness coverage is crucial. If the primary earner falls ill and becomes unable to work, the financial strain on the family can be substantial. Critical illness cover provides a lump-sum payout upon the diagnosis of a covered illness, helping to cover medical expenses, household bills, and other financial obligations during the period of illness and recovery.

Individuals with a Family History of Critical Illness

Those with a family history of critical illnesses such as cancer, heart disease, or stroke are at a higher risk of developing similar conditions. In such cases, availing critical illness coverage can provide peace of mind, knowing there’s financial protection in place to help cope with potential medical expenses and loss of income arising from a serious illness diagnosis.

Individuals with Stressful Jobs

Certain professions entail higher levels of stress, increasing the risk of developing serious health conditions. Jobs involving long hours, high pressure, or exposure to hazardous environments can take a toll on both physical and mental health. For individuals in such occupations, critical illness cover offers a safety net in case of a serious illness diagnosis, providing financial support during treatment and recovery periods.

Individuals above 40 Years of Age

As individuals age, the likelihood of developing serious health conditions tends to rise. Critical illnesses such as cancer, heart disease, and stroke become more prevalent with age. Therefore, individuals aged 40 and above should seriously consider availing critical illness cover to protect against the financial consequences of such illnesses. Having this coverage ensures timely medical treatment and support without worrying about financial implications.

Eligibility Criteria to Avail Critical Illness Insurance

Understanding the eligibility criteria is crucial for individuals considering the purchase of critical illness insurance. These criteria serve as guidelines to determine who qualifies for coverage and help individuals assess whether they meet the necessary requirements. Below are some common eligibility criteria to consider:

Age Requirement

Most insurance providers specify a minimum and maximum age for applicants to avail of critical illness insurance. The minimum age requirement typically ranges from 18 to 65 years old, while the maximum age varies depending on the insurer but is often around 75 years old. Age restrictions help insurers manage risk and ensure that policyholders are within an age range where they are more likely to benefit from the coverage.

Health Status

Applicants may be required to undergo a medical underwriting process to assess their current health status. This process may involve completing a detailed health questionnaire, undergoing medical tests, or providing medical records. Insurers use this information to evaluate the applicant’s risk profile and determine their eligibility for coverage. Individuals with pre-existing medical conditions may still be eligible for critical illness insurance, but their premiums may be higher, or certain conditions may be excluded from coverage.

Lifestyle Factors

Insurance providers may consider certain lifestyle factors when assessing an individual’s eligibility for critical illness insurance. Factors such as smoking status, alcohol consumption, and participation in high-risk activities or occupations may impact eligibility and premium rates. Individuals with healthier lifestyles may be viewed as lower risk by insurers and may qualify for more favorable terms.

Coverage Limits

Insurers typically impose coverage limits on critical illness insurance policies, including maximum benefit amounts and minimum waiting periods before benefits are payable. Applicants should carefully review these limits to ensure that the coverage meets their needs and expectations.

How to Avail Critical Illness in Term Insurance?

Integrating critical illness coverage with term insurance enhances the financial safety net, providing comprehensive protection against both mortality and severe medical conditions. Here’s a detailed guide on how to avail critical illness coverage in term insurance:

Select the Base Policy along with the Assured Sum Amount

Begin by selecting the base term insurance policy that suits your needs in terms of coverage amount and duration. The assured sum amount determines the payout your beneficiaries will receive in the event of your demise during the term plan.

Select the Critical Illness Benefit Rider

Opt for the critical illness benefit rider offered by your insurance provider. This rider provides additional coverage specifically for critical illnesses, supplementing the base term insurance policy. Ensure that the critical illness rider covers the specific illnesses you’re concerned about or that are prevalent in your family history.

Complete Payment of Premium

Pay the premium amount required for both the base term insurance policy and the critical illness rider. Timely payment of premiums is essential to keep the policy active and ensure coverage in the event of a claim.

Fill out the Proposal Form

Complete the proposal form provided by the insurance company, providing accurate and truthful information about yourself and your medical history. Any discrepancies or inaccuracies in the proposal form could lead to complications during the claim process.

Complete Medical Tests

Undergo medical tests as required by the insurance company. These tests help assess your current health status and determine your eligibility for critical illness coverage. The results of these tests may also impact the premium rates for your policy.

Documents Required At The Time Of Claim

When filing a claim with your insurance provider, ensuring you have all the necessary documentation in order is crucial for a smooth and timely process. Whether you’re making a claim for life insurance, health insurance, or any other type of insurance policy, certain documents are typically required to support your claim and facilitate the claims process effectively.

Claim Form

In the event of a critical illness diagnosis or any other claimable event, you or your beneficiaries will need to complete and submit a claim form to the insurance company. This form serves as an official request for benefits and typically includes details about the illness diagnosis, treatment received, and any other relevant information pertaining to the claim.

Medical Certificate

A medical certificate issued by a registered medical practitioner confirming the critical illness diagnosis is usually a mandatory requirement as part of the claim documentation. This certificate provides official verification of the illness and is crucial for the insurance company to assess the validity of the claim.

Certificate of Medical Practitioner

Some insurance companies may request a certificate directly from the treating medical practitioner providing detailed information about the critical illness diagnosis and treatment. This certificate offers additional documentation and insight into the medical history and treatment plan, further supporting the claim.

Test Reports

Copies of relevant medical test reports confirming the critical illness diagnosis may also be required to support the claim. These test reports provide objective evidence of the illness and help validate the diagnosis, contributing to the thorough assessment of the claim by the insurance company.

KYC Documents

To verify your identity and facilitate the claim processing, it’s essential to submit Know Your Customer (KYC) documents, such as identity proof and address proof. These documents help ensure that the claim is processed accurately and efficiently, reducing the risk of identity fraud or errors in processing.

Any Specific Documents

Depending on the insurance company’s specific requirements and the nature of the claim, additional specific documents may be requested. It’s essential to carefully review the claim instructions provided by the insurance company and submit any additional documents or information as requested to expedite the claim settlement process.

Others

Any other documentation or information requested by the insurance company to support the claim should be provided promptly. This may include invoices, receipts, or any other relevant documentation related to the claim event. Providing comprehensive and accurate documentation helps facilitate a faster and smoother claim settlement process, ensuring that you receive the benefits you’re entitled to under your insurance policy.

Considerations While Buying a Critical Illness Plan

When purchasing a critical illness plan, it’s crucial to carefully consider various factors to ensure you obtain the most suitable coverage for your needs. Here’s an in-depth exploration of the key considerations:

Coverage Options

Review the list of critical illnesses covered by the policy. Ensure it includes illnesses relevant to your health risks and family history. Look for term insurance policies with comprehensive coverage to protect against a wide range of conditions.

Policy Terms and Conditions

Carefully read and understand the terms and conditions of the policy, including coverage limits, waiting periods, exclusions, and renewal provisions. Pay attention to any restrictions related to pre-existing conditions or family medical history.

Sum Assured

Determine the appropriate sum assured based on your financial obligations, such as medical expenses, living expenses, debt repayments, and income replacement needs. Ensure the coverage amount is sufficient to provide adequate financial support in the event of a critical illness diagnosis.

Premiums and Affordability

Compare premium rates from different insurers and select a plan that offers competitive pricing while providing comprehensive coverage. Consider your budget and ensure the premiums are affordable in the long term, as Critical Illness Plans are usually long-term commitments.

Waiting Period

Understand the waiting period specified in the policy, during which no benefits are payable after purchasing the plan. Choose a plan with a waiting period that aligns with your needs and financial situation.

Claim Process

Evaluate the insurer’s claim settlement process, including documentation requirements, claim submission procedures, and turnaround time. Select an insurer known for prompt and hassle-free claim settlements to avoid complications during a critical illness diagnosis.

Insurer’s Reputation

Research the reputation and financial stability of the insurance company offering the critical illness plan. Choose a reputable insurer with a strong track record of customer service and claim settlement to ensure reliability and peace of mind.

Wrapping it Up

In today’s world, critical illness coverage has become increasingly vital as the prevalence of severe medical conditions continues to rise. With lifestyle factors, environmental changes, and genetic predispositions contributing to the growing incidence of critical illnesses, protecting oneself and one’s family against the financial hardships associated with such conditions is paramount.

FAQs on Critical Illness Insurance


1

Can I cancel my critical illness policy if needed?

Yes, most insurers allow policyholders to cancel their critical illness policy, but terms and conditions may apply. It’s recommended to review the policy document or contact the insurer for cancellation procedures and any associated fees.



2

Will my premiums increase over time?

Premiums for critical illness plans may increase over time due to factors such as age and changes in health status. Some policies offer level premiums, while others may be subject to periodic adjustments. It’s essential to understand the premium structure before purchasing the policy.



3

Can I purchase a critical illness policy if I already have health insurance?

Yes, you can purchase a critical illness policy alongside your existing health insurance to supplement coverage and provide additional financial protection against critical illnesses.



4

What are Critical Illnesses?

Critical illnesses are severe health conditions or diseases that can significantly impact a person’s life and ability to work. Examples include cancer, heart attack, stroke, organ failure, and major surgeries.



5

Is Critical Illness Insurance Cover Expensive?

The cost of critical illness insurance cover varies depending on factors such as age, health status, coverage amount, and insurer. While premiums may be higher compared to other types of insurance, the financial protection provided in the event of a critical illness diagnosis can outweigh the cost.



6

Why is a Critical Illness Insurance Cover essential?

Critical illness insurance cover is essential because it provides financial protection and peace of mind during challenging times. It helps cover medical expenses, household bills, and other financial obligations if you are diagnosed with a covered critical illness and unable to work.



7

Are Medical Tests Important to Get Critical Illness Cover?

Yes, medical tests are often required to assess your current health status and determine eligibility for critical illness cover. These tests help insurers evaluate your risk profile and may influence premium rates and coverage terms.



8

Does Critical Illness Pay Monthly?

No, critical illness insurance typically pays out a lump-sum amount upon diagnosis of a covered critical illness. This lump sum can be used to cover medical expenses, replace lost income, or fulfill other financial needs during the illness and recovery period.



9

What is the survival period of Critical Illness Rider?

The survival period of a critical illness rider refers to the length of time the insured must survive after the diagnosis of a covered critical illness to be eligible for the payout. This period varies depending on the policy terms but is usually around 30 days.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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