Four Myths about Critical Illness Policies

Myth 1: Critical illness Policy is same as a health policy:

A Health policy pays for the cost of hospitalization and defrays your expenses within allowed limits.  It doesn’t cover other incidental expenses that you may have as result of the hospitalization, for example unpaid leave, transportation and recuperation expenses etc. A critical illness plan is designed to provide you a lump sum amount in case you suffer from a critical condition irrespective of the amount you spend on treatment. This policy is useful in cases where the medical expense is likely to be large and the nature of expenses extend far beyond hospitalization. An example of this would be cancer which requires extended treatment, days out-of-of work, and travel outside town/country for treatment. Another example may be a stroke that leaves you paralyzed and unable to carry out normal activities.

Myth 2: Number of illnesses covered makes the policy better

One way insurance advisors and companies distinguish critical illness plans is by number of diseases covered.  The idea being more the illness covered the better it is. However the reality is that you are better off with a broad definition of the illness and not having to argue over definition during a claim. As critical illness policy is designed to cover truly catastrophic illness, having illness that don’t have catastrophic impact on your finances don’t make much sense. There are some illness, Cancer, Major Heart surgeries, Stroke, Major Organ Transplant, that should be part of any critical illness plan.

Myth 3: All Critical illness policies pay equally.

Where critical illness policies differ a lot is when they pay. There are some policies that pay upon diagnosis while others require the insured to survive a certain number of days (30-90 days) before paying. Any policy that requires a survival period beyond 30 days is probably worth avoiding.

Myth 4: Creating a corpus for critical illness is better than Insurance

There is an increasing belief and push by financial advisors that you are better off creating a corpus for critical illness rather than buy a policy. This in my opinion is a dangerous advice for most. If you are independently wealthy, and expense of tens of lakhs of rupees will not affect your financial situation, by all means avoid a Critical illness policy. Also beyond a certain age (above 65) you will not get such a policy and there you have no option but to rely on your savings. Critical illness does not wait for you to create a corpus before it strikes. It afflicts people of all ages and at all times. So don’t just rely on a corpus, get protection.