“A Critical Illness Plan is must for you,” last week my Relationship Manager told me. It covers 20 Life-Threatening Diseases, She further added. It put me in a fix whether to buy a Critical Illness plan or not. As i mentioned in my previous posts on insurance that insurance can only be sold through FEAR factor. I agree that term insurance plan and health insurance plan are MUST HAVE. Once my relationship manager knew that i already have these two plans, she started pitching me other riders/plans. Personal Accident Cover and Critical Illness plan are two plans that can be easily marketed. Once she named 4-5 life threatening diseases to me, i was almost ready to subscribe to a Critical Illness plan. In fact recently, one of the banks pitched me specialized plan for Cancer Care. I had sleepless nights after so many sales pitch related to Life Threatening Diseases. Then i decided to ask myself, Do i need Critical Illness Plan?
To answer this question i decided to ask myself 5 W’s i.e. What, When, Where, Why and Who?. Whenever i am in an FIX, i ask these 5 W’s to myself. Though all are not relevant in all the situations, it helps me in decision making. After this exercise, i got my answer that personally i don’t need Critical Illness Plan. It doesn’t mean that this cover is useless. You should always buy what you need. Someone with family history of critical illness, therefore, should BUY Critical Illness Plan. Let me clarify that this post is not FOR or AGAINST Critical Illness Plan but only to help readers in decision making. Here i would like to share following points that i considered in decision making. Hope these points will be useful
Get Critical Illness Plan for Cheap
I observed that sales pitch to me was centered around the premium of the cover. My relationship manager focused on a point that daily premium for 12 lac cover is less than Rs 10 per day. Similarly, a cover for cancer care was pitched with a premium of less than Rs 5 per day. Here the marketers take advantage of granularity. The annual premium of Rs 3500 is pitched as Rs 10 per day which makes it sound very cheap cover. I asked myself, Should i buy a Critical Illness Plan just because it is cheap?. Here you should consider following 2 points
(a) Total Premium Paid during a Year: Currently, i am paying an annual premium of almost Rs 1 lac for various insurance policies. It works out to be approx Rs 8,000 per month. I can keep adding as many covers/riders as i want. At some point, i need to decide what is necessary and what is optional. My relationship manager told me that your health insurance premium is Rs 25,000 p.a. the Critical Illness Plan costs just Rs 10 per day or Rs 3,500 annually. Fair enough but the probability to trigger health insurance claim is MUCH higher compared to probability to trigger a claim under Critical Illness Plan. Higher the Probability is Higher the Premium. Moreover, my health insurance policy also cover hospitalization due to critical illness. Therefore, we cannot compare these two covers. To summarize, you should have a budget for total insurance premium across policies depending upon the requirement of same.
(b) Consider Health Insurance Top Up: An important point to consider is that the hospitalization/treatment of critical illnesses is very costly. Therefore, you need to evaluate whether your existing health insurance policy cover is sufficient to take care of hospitalization due to critical illness or not. If the answer is NO, then you should either opt for Critical Illness Plan or increase health insurance cover. In my case, existing health insurance cover is sufficient as of today but may be after few years i will buy a top up plan to increase my health insurance cover. It will take care of Critical Illnesses. Another advantage of health insurance top up over critical illness plan is that it provide coverage for my entire family. As i mentioned, if i buy Critical Illness Plan then it will only cover me for life-threatening diseases, not my family.
Family History of Critical Illness
The life-threatening diseases are uncertain & non-discriminatory in nature. But, if your family has a history of any critical illness, then Critical Illness Plan is MUST. Here i would like to add that you should buy this cover only if there is a NEED or Requirement. As a thumb rule, Insurance cover is availed only for earning member of the family. In a case of family history of critical illness, all the members of the family should avail Critical Illness Plan including non-earning members. In such cases, you can always maintain a balance between health insurance and critical illness plan premium. The reason is that if the probability of critical illness is high then the cover for same provide high coverage at a lower premium. You may lower health insurance to accommodate critical illness plan. Therefore, you can smartly define your insurance requirements within budget.
You cannot cover ALL the uncertainties in life
Always remember that life is uncertain and as an individual i cannot cover all the uncertainties of life. My resources are limited, and i need to prioritize depending on the probability of an event. As i explained that claim under health insurance is an extremely probable event, therefore, i opted for health insurance policy on priority. Similarly, Term Insurance policy is also must. A coverage of more uncertainties in life come at a cost. You should always make a list of high probability events and should cover them in the same order. I can buy critical illness plan, personal accident plan, cancer care and few more plans. It will increase my annual premium and may cross 2 lac some day. Therefore, always reconcile to the fact that you cannot cover all the uncertainties in life. You need to do cost-benefit analysis and maintain reasonably fine balance.
Check the Policy Terms and Conditions
The critical illness plan comes with a lot of riders. In past, i wrote a post before you buy critical illness cover. In this post, i explained all the points you should consider before you buy Critical Illness Plan. I request you to go through this post before you sign on the dotted lines. Moreover, we always buy a cover with an assumption that it will come to our rescue during bad times. If we don’t check all the terms and conditions or imp points at the time of purchase, then it might come as a rude shock in future.
Words of Wisdom: You should always buy Critical Illness Plan as a Stand-alone policy rather as a rider to term insurance or health insurance policy. The Stand-alone policy is more comprehensive compared to a rider attached to other policy. Secondly, always remember that health insurance only cover hospitalization. Whereas for the claims under critical illness plan, hospitalization is not a must. The trigger to file a claim is critical illness covered under the policy. Therefore, it has the advantage of covering loss of income or incidental expenses that are not covered by health insurance. On the hand, Critical Illness Plan is terminated once the claim is filed & settled whereas health insurance policy is in force even after claims.
Always maintain a healthy lifestyle. I wish for everyone that life should never put us in a condition wherein we need to file a claim for health insurance or critical illness plan. We should buy these covers only as a safety net for our near and dear ones.
Copyright © Nitin Bhatia. All Rights Reserved.