29 Nov, 2021 | Term Life Insurance

How does a Critical Illness Insurance plan help out your family?

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Introduction

Factors such as stress, unhealthy food habits, smoking, lack of exercise, etc. have worsened our lifestyles today and increased the risk of us getting diagnosed with critical illnesses such as cancer, diabetes, heart disease, etc. The cost of surviving and curing such diseases is very high as they require expensive and extensive treatments. They also involve additional expenses such as 24-hour nursing care, physical therapy, rehabilitation care, follow-up checkups, etc.

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Impact of a Critical Illness

If you’re the sole earning member of your family, speaking purely in monetary terms, a critical illness could impact your family even more than your death. Besides an increase in expenditure, there will also be a loss of earnings - as you’ll be in no position to work. You’ll probably have to quit your job, either temporarily or permanently. 

This could put a financial strain on your family. If there are not enough funds, they’ll have a very hard time paying for all the expenses. They will be forced to liquidate the fixed deposits, investments, etc. or take on debts. Or your eldest child will be forced to get a job so that he/ she can help financially. 

While there is no silver bullet for a situation like this, you can at the least be well prepared for it.

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How can Term Insurance help?

Besides paying a death benefit, if you buy the term insurance with a critical illness rider, you can also get a sum of money in case you’re diagnosed with a serious disease.  At an extra cost and with no extra paperwork, you can buy the critical illness rider as an add-on to your term insurance policy.

A critical illness rider will pay your family a lump sum amount if you get diagnosed with any serious illness listed in the policy document. It can act as an income replacement and buy your family some time to get things in order. Your family can use this amount to cover all the expenses they’ll have to bear as a result of the illness (especially those costs not covered by health insurance) in the short term as well as in the long term.

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Types of Critical Illness Riders

There are two types of critical illness riders in the market today, and you should be very careful about the type of rider you opt for. 

Accelerated Rider

An accelerated rider will simply pay you an advance amount out of your base policy cover. Meaning, if you use the rider for a certain amount, your base policy cover will be reduced by that amount.

Comprehensive Rider

Unlike an accelerated rider, a comprehensive rider will not affect your base policy coverage. The cover amount of this rider is additional to the cover you buy for your base policy.

Let’s understand both these riders better with the help of an example.

Say you buy an INR 1 Crore term insurance with a critical illness rider of INR 1o Lakh along with it. An accelerated rider will pay you INR 10 Lakh when you get diagnosed with a critical illness and the death benefit will be reduced to INR 90 Lakhs. However, a comprehensive rider will pay you INR 10 Lakh when you fall critically ill and in the event of your death, your family will receive a full claim payout of INR 1 Crore. 

Note: Some insurance companies only offer accelerated riders, while the rest only comprehensive ones. You don’t get to choose from the two options within the same base plan. So, it is important that you compare plans ahead and understand whether they come with an accelerated rider or a comprehensive one - before choosing the base plan itself. 

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Alternative to a Critical Illness Rider

Besides these riders, you can also purchase a separate specialized policy for critical illness, that will provide a more comprehensive and dependable cover. Unlike riders that only cover advanced stages of illnesses, a standalone critical illness policy provides coverage for early stages of illnesses too. However, the premiums could get pretty expensive over time. Plus, you’ll have to undergo medical checkups, go through the whole documentation process and spend some extra time and effort to finalize the best cover. 

Let’s quickly take a look at the differences between a standalone critical illness plan and a critical illness rider.

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A quick comparison: Critical illness rider vs Standalone critical illness policy

 Critical Illness RiderStandalone Critical Illness Policy
MeaningIt is purchased as an extension to your base insurance policy.It is a separate comprehensive policy.
Coverage amountCoverage depends on the base insurance policy.It is flexible and you can buy any amount of cover.
Stage of diseases coveredOnly advanced or final stages of the disease are covered.The initial stages of the disease might be covered too.
PremiumsInitial premiums could be similar to standalone policies. They usually remain fixed for a long duration or the entire term based on the plan.Premiums depend on your age and health condition and can become expensive as you grow old.
Buying processIt is an extension to your base plan, so no separate paperwork or medical tests are required.You’ll have to go through the documentation and undergo medical tests wherever necessary.

So, If you don’t want to spend too much effort or pay additional costs - opt for a critical illness rider that is sold along with your term insurance policy. However, if you want to purchase an adequate and dependable cover for your family and are willing to spend some extra money, buy a specialized critical illness policy. 

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Good to know: Waiver of premium on Critical Illness Rider

Getting diagnosed with a critical illness can impact your financial stability drastically. It could even lead to you not being able to pay your term insurance premiums on time which in turn could lead to your policy getting lapsed.

The waiver of premium on critical illness rider can help avoid this. It will waive off the burden of paying all your future term insurance premiums if you get diagnosed with an illness listed in the policy document. You can still enjoy the term insurance cover for the rest of the policy tenure. This rider is a no-brainer and you should always consider buying it. 

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Key takeaways
  1. The cost of curing critical illnesses is very high because they require extensive medical care and treatment. Hence, having a critical illness cover is a must.
  2. Along with a death benefit, your term insurance can also provide a critical illness cover. You can buy the critical illness cover as a rider with your term plan.
  3. Be careful about the type of rider you purchase with your term plan - if it's an accelerated rider, it will simply pay you out of your base policy.
  4. You can also purchase a standalone critical illness insurance policy if you want a more comprehensive cover.
  5. Always consider buying the waiver of premium on critical illness rider - it will waive off all your premiums for the rest of the term if you get critically ill during the policy term.
Team Beshak
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Team Beshak, We breathe insurance :)

We are a group of young members of the Beshak community. We come together to brainstorm, write relevant and useful content for people (just like us) who want to figure insurance on their own. If you too want to share inputs/write for us - send us a "hey" to info@beshak.org

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