Critical illness insurance is not cheap, but it’s essential

By Aadil Kadri Jun 15 2011

Let us discuss or shed some light on modern medicine and its impact on financial planning.

The National Vital Statistics System – Life Expectancy table shows that life expectancy of male and female in the year 1900 was 42 and 47 years respectively, but in 2010 this has gone up to 78 and 82 years, respectively.

There is a high probability of someone being diagnosed with a critical illness today and there is a high probability of his survival. However, survival comes at a cost.

Let us look out for a solution called as “critical illness insurance”. Critical illness insurance is an indemnity insurance which pays the face amount of the policy to the insured in a lump sum upon the diagnosis of specified illness. We can even name it as a loss of income insurance. This was designed by Maurice Barnard, brother of Christian Barnard.

Critical illness insurance plan is important to have because statistically one in four men and one in five women will contract one of the illnesses covered by a standard critical illness product before they reach age 65. The probability of suffering from cancer, heart attack and stroke are high and chances of survival have been consistently increasing. Life Insurance hopefully will take care of the family of a person in case of a death claim but those who survive long could potentially face severe financial hardship.

We have 80 per cent of people losing their homes because of major illness and only 20 per cent because of death.

Medical insurance will hopefully take care of all the direct expenses of the hospitals and pharmacy bills. But the lump sum money which comes upon the diagnosis of critical illness might help them to take care of liabilities and responsibilities of family.

Having a critical illness insurance plan can offset some of the financial stress and help an individual focus on recovery.

A critical illness plan protects your income. We need critical illness benefit not because we are going to die but because we are going to live!

The difference between health and medical insurance and a critical illness benefit is your medical insurance pays for your ongoing medical expenses. A person suffers a heart attack; the medical insurance company will pay for all the covered expenses in the hospital. Your critical illness benefit, on the other hand, is one-time lump sum payment upon diagnosis of illness. It does not depend upon severity of the sickness. One could have a heart attack or cancer or stroke; the critical illness benefit will pay the entire amount, as long as, under the medical terminology it is classified as a critical.

However,  we should absolutely not replace medical insurance with critical illness insurance as they both have different benefits and they complement each other.

The benefits of including critical illness in our financial planning is to provide a lumpsum funds. This helps us to retrain for a less stressful career and lifestyle which will reduce or eliminate debts.

Lumpsum money helps us pay off our mortgage balance if we suffer from any of the critical illnesses such as a heart attack, stroke or cancer. Finally on the event of a critical illness we can be rest assured that all your routine financial obligations are met.

Having a critical benefit insurance is costly, however,  it is costlier if you do not have it.

The premiums are based on age, sex and health. Factors like smoking and family history play a very significant role in our critical illness benefit. People with family history of diabetes or heart attack or cancer run a 40 per cent higher risk of contracting one of the three major sicknesses.

Critical illness is costly living benefit and since the probability of claiming on a critical illness policy is much higher that life insurance the cost of the policy is also higher.

Critical illness insurance is becoming more expensive than a life insurance because with medical advancement because of which chances of survival are higher today. Critical illness insurance is not cheap, but it is an essential part of financial planning.

It is not the question of " if " critical illness happens . It’s a question of “ when” critical illness happens how are we going to face it? 

(Aadil Kadri is a CFPCM and is working as an Associate Vice President and Group Manager  at Continental
Financial Services. The views expressed here are personal, and do not necessarily represent that of the organization. FPSB India is the sole marks licensing authority for the CFPCM marks in India.)

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