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ShareUnlike life covers, such policies provide income replacement while you are still alive
People commonly buy insurance to replace their income after death. Few buy a cover for replacement of their income when they are still alive. In fact, try telling them about it and most would shoot back, "Why would I need income replacement when I am alive?"
Well, what if a critical illness or disability arose? Or, an accident made sure you couldn't earn as much as you are doing now?
Before you hit retirement age, the chances of your being critically ill are higher than that of death. Given this, as an earning member, the need to substitute your income (in case you fall critically ill) is far more important than if you were to die.
To cut the long story short, in addition to your life insurance cover, which provides for your family in case of your death, you need a critical illness cover to replace lost income if you were to fall critically ill.
According to latest data, the number of people suffering from critical illnesses such as cancer and heart attack is ever increasing.
Meanwhile, the cost of treatment for such diseases has been galloping northward; so much so, one can go bankrupt trying to fund such costs.
Many insurance companies provide insurance to cover critical illness. While general insurance companies sell critical illness covers as individual policies, life insurers offer these as riders on life insurance policies.
The whole sum assured is payable lump sum within a specified number of days of the insured being diagnosed with any of the critical illnesses specified in the insurance contract, ranging from 30 to 90 days.
If a person dies during the 30-90-day waiting period, nothing will be paid by the insurance company. But surviving this period ensures the lump sum payment, which is tax-free.
It doesn't matter if the insured recovers from the critical illness and is able and willing to work. It will have no effect on the payout.
It is thus a survival benefit - you benefit if you survive the pre-decided post-diagnosis waiting period.
Before buying a critical illness cover from a life or non-life insurer, you should look at the illnesses covered by the policy. Buy a policy that covers the maximum number of frequently occurring illnesses or illnesses that run in your family.
Another question that should arise is: do you buy the critical illness rider on a life insurance policy or the separate non-life critical illness policy?
Standalone, non-life critical illness policies are year-on-year contracts - which means the insurer might refuse to renew your policy as you grow older and more infirm.
The critical illness rider on a life insurance policy, on the other hand, is good for the entire tenure of the life cover specified in the policy.
Therefore, if you do not have a life cover right now, or you are under-insured, take a term policy with critical illness cover. If you have adequate life cover, go for the non-life critical illness policy. Critical illness insurance is scrutinised on the basis of age, health history of an individual and his/ her family.
If you are young and healthy, do not wait. Go and get adequate critical illness cover to ensure that you and your family don't suffer because of income loss or the huge expenses incurred. And by the way, premium paid on such a cover is eligible for tax deduction under Section 80(D).
The writer is a certified financial planner at Apnainsurance.com, which enables customers to search and obtain the policy cover they need, and can be reached at kairav@apnainsurance.com. Views are personal.
