What are critical illness plans?

Vivek Law, Founder and Editor in Chief, The MoneyMile: There is a lot of talks these days about the critical illness. What policies are these? Do I top them up on top of my existing insurance policy? Are they separate? What is the basis of these critical illness covers?

Dhruv Sarin, Head of Growth, Policybazaar: Diseases which are life-threatening such as cancer, tumour, heart attack are defined as critical illnesses. A health insurance policy provides coverage in case you get any of those and you will get a lump sum benefit. You will get a lump sum benefit because other than your hospitalization expenses, there could be other expenses that are not covered as part of health insurance. When you suffer from a critical illness, your income will also suffer as you will have to meet its expenses. So, having a critical illness cover will ensure that these expenses are met.

A critical illness plan starts from 8 to 9 critical illnesses and can go up to 60 critical illnesses. So, one should opt for as many critical illnesses covered as part of the plan. Thirdly, there are riders to your term insurance or health insurance and there are standalone policies as well. Typically, you can buy a higher cover in a standalone policy whereas you can buy only up to a certain limit of the sum insured in your health insurance or your term cover. So, if one needs a higher cover, they need to buy a standalone policy. In terms of what is the right sum insured, the answer is the same as term insurance.

A person buys term insurance for your liabilities in any loss of income for continuity from a lifestyle perspective. The same is the case of critical illness. For instance, if somebody gets a critical illness at the age of 50 years, there will be a loss of income because they will not be able to work. There will be liabilities and lifestyle continuity. Therefore, the sum insured for a critical illness also has to be sufficient enough that it takes care of the loss of income and other expenses pertaining to the critical illness.