Saturday, 24 June 2017

Critical Illness Rider: Is it that critical

Life Insurance is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money  in exchange for a premium, upon the death of an insured person . 

Depending on the contract, other events such as terminal illness or critical illness can also trigger payment. The policy holder typically pays a premium, either regularly or as one lump sum. Other expenses (such as funeral expenses) can also be included in the benefits.

Till about two decades back Indian Insurance was dominated by government owned Life Insurance Corporation of India.IRDA opened up the market in August 2000 with the invitation for application for registrations. Foreign companies were allowed ownership of up to 26%

That  let to huge surge in Insurance Companies in India. The importance of life insurance was never accepted or educated in the nation.The overseas insurance companies of the likes of Prudential and Standard Life tied up with Indian arms to spread awareness and Insurance in very very under insured country 

Currently The insurance industry of India consists of 53 insurance companies of which 24 are in life insurance business and 29 are non-life insurers. Among the life insurers, Life Insurance Corporation (LIC) is the sole public sector company.

Investors now had huge product range to chose and compare. This helped many to get over LIC as only player and in turn also made LIC introduce better products to beat competition. However the flip side was mis selling of products to insurance. How ULIP plans sold and cheated many has already been highlighted in my blog

Now when we decide the best product for insurance is pure insurance and go for term plan we are faced with one typical question

" Should I include Critical Illness rider with life Insurance"

A critical illness normally is addition to life cover where money is paid when the insurance holder is diagnosed of a critical health issue covered in policy document. To illustrate like Heart attack, Kidney failure ,Cancer........

As a normal advisor or even a policy holder will feel when I am going through all medical tests it sounds logical to cover critical illness as that shall help me pay hospital bills and also take care of my not working during the period.

But wait. It is not that simple. During my interaction with most of the insurance companies and many other insurance advisor and my own experience I hold another view.While the companies promise you critical Insurance cover at some additional costs, at the time of event they shall get into all details of illness.

They can go to the extent that If heart attack resulted in damage of heart muscle? If yes how much? Does that qualify for critical?  

If the Kidney failure is 60% or 80%? If yes then it is not that critical as person can carry on with dialyses and live long life.

In one of my personal cases insured with critical illness rider was detected with cancer. By the time Insurance company verified the same it was already one month. Unfortunately the insured died and all his family got was life insurance cover. So practically additional payment towards CI went waste 

More so since the same company is giving you Critical Insurance cover as well as Life cover  there is a great possibility that the life cover is terminated on detected with some life threatening case detected  

TERM INSURANCE: Amount paid on death of policy holder Yes you will not believe but it is true. Moreover In case of death if one doctor declares you dead there is no chance that other will give a different report. So in case of Term Insurance there is very less chance that family of insured does not get sum assured

HEALTH INSURANCE Similarly Health insurance policies pay on hospitalization, except for a small subset of treatments listed in the policy document. If the hospital says the insured person is/was a patient, what are the chances that the insurer is going to dispute it?!

CRITICAL ILLNESS  Critical illness policies pay when a critical illness is  established. Once your doctor confirms an illness ‘listed’ in the policy document, the doctors who work for the insurer have to concur that the nature of the illness falls in line with the policies definition of 'critical'. If they don’t concur (More likely possible as per history), no payment will be made.

I have checked the rates for few companies with both options. Vanilla term insurance vs Term Plan with Critical Illness. The age taken 35 with cover of 1 crore and additional critical illness rider of 25 lacs

As per online in case of Birla Sunlife if pure term plan will cost around 29000 but if CI rider an extra 12015 and that shall be for waiver of premium

In case of Max life pure term plan shall cost around 28000 however prmium waiver in case of CI with another 2000 Rs

In case of newly launched 3D plan with HDFC Life the term plan will cost around 25000 with additional premium of Rs 3000 for CI and waiver of premium

One can also look at Critical illness cover offered by general insurance companies. They are separate and do not interfere with ongoing life cover with Life insurance companies. hey can be taken at same time as health insurance to avoid medical tests twice. Moreover they carry same tax benefits 

So What is my take:

I shall only go for pure life cover with a good insurance company with not only less premium but also good claim record

I shall take a good amount health insurance from a good general insurance company with cashless and easy claims

For Critical Illness I may opt for separate cover with general insurance or even better option to create a separate corpus by way of SIP in a good equity mutual dedicated for medical emergency. The same shall be liquid and not at the mercy of any doctor report 

This is my take after in the industry for more than 15 years and a TOT member of insurance club three times in a row. But no one is perfect and I my take may not be taken well by everyone.

On a lighter note stay happy, follow yoga, meet your friends more often,Travel the world, Think positive, laugh more often................You will never need Critical Illness cover 


  1. Your views on CI as a rider to life policy are not in order. There is no scope for any surprise at the time of claim. CI definition in the policy will prevail,e.g. chronic renal failure, CABG etc.
    There are other inaccuracies as well but it will take too long to articulate here.

    1. I am not sure what you are trying to say is wrong.