What are critical illness policies?

Critical illness product is offered by life insurers and non-life insurers. If your family has a history of serious ailments, or your lifestyle is stressful, you could take a critical illness plan. Even otherwise, with the increased stress and strain of modern life and an unhealthy and sedentary lifestyle, most of us are becoming increasingly prone to serious illnesses such as cancer, coronary heart disease and stroke. If a critical illness occurs, the company pays the entire sum insured. Advances in modern medicine have made it possible for most of us to survive these illnesses. But it could yet result in the loss of a job or inability to manage one's business and, therefore, a loss of income. In such cases, critical illness cover pays a lump-sum benefit, also helping to protect the person's lifestyle.

Most life insurers have long offered these covers as riders to your life insurance policy. These days, these critical illness covers are also being offered as stand-alone policies by non-life insurers, to cover the risk of specific kinds of critical illnesses such as, say, cancer. Most policies require you to survive for a specific number of days after diagnosis for the policy to pay. Surging healthcare costs and expenses other than hospitalisation which are not covered by mediclaim have made critical illness product important. Critical illness product premium just like mediclaim premium is eligible for tax exemption up to Rs 20,000 under section 80(D) of Income tax act.

The benefit of the health package is that if a person already has a mediclaim policy, and also gets a health policy from a life insurance company, s/he stands to benefit doubly. How does this work? For instance, take the case of a person suffering from cancer and the treatment has cost him Rs2 lakh. He could claim the money against the mediclaim (Rs2 lakh) as well as the health policy benefit from the life insurance company of which he is a customer (another Rs2 lakh). Thus, he will get a total Rs4 lakh, compared to a person who has mediclaim of only Rs2 lakh.

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