Critical illness insurance 

Critical illness insurance as the name indicate is to cover the severe illness that require prolonged medical treatment and care. Unlike standard health insurance policy which provide coverage for medical expenses during hospitalisation critical illness insurance provides LUMP SUM PAYMENT on diagnosis/treatment of covered critical illness. 

How Does Critical Illness Insurance Work?

For example, if Ramesh has a ₹10 lakh standard health insurance policy and a ₹10 lakh critical illness policy, and he is diagnosed with a blockage in his coronary artery requiring bypass surgery (Coronary Artery Bypass Graft – CABG), the hospitalization expenses will be covered by his standard health insurance policy.

In addition, he will also receive a ₹10 lakh lump sum payment from his critical illness policy. This lump sum can be used for non-medical expenses, recovery-related costs, or any other financial needs.

Hospitalization is not mandatory for certain critical illnesses. For example, some policies cover conditions like blindness or deafness caused by an accident or illness. In such cases, hospitalization may not be required for the insurance company to pay the claim.

IRDA defined critical illnesses

IRDA(Insurance Regulatory and Development Authority of India) through its master circular on standardisation in health insurance had defined 22 critical illnesses.  Every critical insurance policy or rider must include these definitions verbatim, exactly as defined by IRDA.

Do You Need a Critical Illness Policy?

You might already have a health insurance policy with a high coverage limit, but that doesn’t mean it will cover all treatments for every disease or even fully pay your hospital bills.

Let’s take an example: Ram has a health insurance policy worth ₹20 lakh. Unfortunately, he is diagnosed with cancer and needs advanced treatments like proton therapy. Most health insurance policies in India do not cover such treatments, so Ram would have to pay a large amount out of his own pocket.

Similarly, many other treatments, medicines, and non-medical expenses for critical illnesses aren’t covered by standard health insurance. This is where a critical illness policy becomes essential. It provides a lump sum payout based on the insured amount, regardless of the hospital bill. This money can be used for any treatment, medicines, or other expenses, making it a lifesaver during tough times.

Options to Buy Critical Illness Insurance

You can buy a standalone critical illness policy from general or standalone health insurance companies. These policies offer higher coverage amounts (like ₹50 lakh or ₹1 crore) and include a broader range of critical illnesses.

Another option is to buy a critical illness rider or add-on with your term insurance policy. The premium remains fixed and does not increase with age, making it an affordable choice. However, these riders typically offer limited coverage.

For basic and affordable coverage, a rider with your term insurance is a good choice. If you need higher coverage and more illnesses covered, a standalone policy is the better option.

Factors to Consider When Choosing a Critical Illness Policy

• Coverage Amount: Choose a policy that offers a sufficient coverage amount to handle potential expenses comfortably.
  
• List of Covered Illnesses: Look for policies that cover a larger number of critical illnesses. Ensure these illnesses match the definitions provided by IRDA to avoid confusion or claim rejections.
  
• Waiting Period and Survival Period:
  • Waiting Period: Most policies have a 90-day waiting period after purchase, meaning illnesses diagnosed within this time will not be covered.
  • Survival Period: This refers to how long you need to survive after being diagnosed with a covered illness to claim benefits. For example, if Ramesh is diagnosed with lung cancer on July 1, 2025, under a policy with a 30-day survival period, he must live until at least July 30 to make a claim. If he passes away on July 29, no claim will be paid. All critical illness policies come with a survival period clause, which can range from as low as 30 days to as high as 150 days or more. It’s always better to choose a policy with a shorter survival period.
    
• Exclusions and Pre-Existing Conditions: Critical illness policies usually do not cover pre-existing conditions. If a diagnosed illness is traced back to a condition existing before the policy was purchased, the claim will be denied. The illness must be diagnosed for the first time after buying the policy and should not result from any pre-existing condition.
  
• Premium Affordability: Ensure the premium fits your budget. Some policies may have high premiums, making them difficult to afford. Focus on buying a simple critical illness policy that covers only critical illnesses. Avoid policies that combine critical illness with personal accident coverage, as they can make things confusing. Buying too much insurance can become a burden on your savings, so only get what you truly need.

I hope this helps you choose the right critical illness policy tailored to your needs.