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Why Critical Illness is Important with Term Insurance

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Why Critical Illness is Important with Term Insurance
January 13, 2025

Table of Content

 

Term Insurance with Critical Illness Riders

When you buy a term insurance plan, you are relieved that your family will lead a comfortable life without financial issues when you are not with them. But have you imagined the situation your family will be in if you are diagnosed with a critical illness that might cost your job and drain away all your savings? Term insurance with critical illness rider averts such a situation. It provides a lump sum payout immediately after you are diagnosed with a critical illness. You can utilise this amount for medical expenses, to supplement your income, etc. This article is about critical illness coverage, its benefits, diseases covered and not covered under the rider, and much more.

What is Term Insurance with Critical Illness Rider?

Term insurance with critical illness rider is a term insurance plan in which you opt for the critical illness rider as an add-on to the base plan. This option can be exercised while buying the term plan or anytime during the policy term. The rider will provide a lump sum payout if you are diagnosed with any critical illness listed under the policy. The amount can be utilised for hospitalisation bills, medicines, ambulance charges, or other relevant expenses. The most common critical illnesses covered under the rider are cancer, heart disease, stroke, kidney failure, etc. This benefit enhances the coverage for an extra premium.

Benefits of Choosing Term Insurance with Critical Illness Coverage

Term insurance with critical illness cover provides multiple benefits. They are:

  • One-time Payment With No Deductions

    • If you are diagnosed with a critical illness, you need not be stressed about the treatment costs if you have a term plan with critical illness rider. You receive a lumpsum amount immediately upon being diagnosed with the disease and can use it for medical expenses, prescription medicines, surgery, or any other necessary expenses. The insurer extends the entire sum assured under the critical illness rider without deducting any costs.

  • Protection for Medical Costs

    • The term insurance with critical illness rider releases a lump sum to cover medical costs. The payout can be used entirely for treatment costs without restrictions such as hospitalisation expenses, medicines, ambulance charges, doctor consultations, lab tests, etc.

  • Replacing Lost Income

    • The lumpsum payout under major diseases coverage can supplement your income in case of a temporary income loss due to a critical illness. You can use the payout to manage expenses such as paying monthly utility bills, groceries, children’s school/college fees, or any other household expenses.

  • Additional Tax Benefits

    • A term insurance policy provides tax benefits under Section 80C and Section 10(10D) of the ITA Act 19611. Term insurance with critical illness cover offers additional tax benefits under Section 80D, further reducing your overall tax liability.

  • Premium Amount Remains the Same

    • The premium amount for term life insurance with critical illness rider remains the same even on the diagnosis of a critical illness. It means the premium rate will not change for a new critical illness during the plan period. If you have opted for a waiver of premium along with the critical illness rider, you will be exempted from paying further premiums on a critical illness diagnosis.

  • Improved Chances of Survival

    • Most people do not get quality treatment for a critical illness or stop treatment midway as they cannot afford it and succumb to the disease. However, term insurance with critical illness rider prevents such a situation by providing a lump sum for the treatment costs. With quality treatment at reputed hospitals, the chances of survival are higher if you have critical illness coverage.

Who should consider buying term insurance with critical illness coverage?

Term insurance with critical illness cover is important for everyone who intends to prepare for their medical emergencies in addition to the financial security of their families in their absence. However, the following individuals should strictly consider buying term insurance with critical illness rider.

  • Self-Employed Individuals

    • Unlike salaried individuals, the self-employed do not have an assured monthly income. They cannot commit to saving a fixed amount regularly for medical emergencies. Such persons must buy a term life insurance with a critical illness rider. The lump sum payout will help them handle the treatment costs without financial stress.

  • People with Limited Savings

    • Critical illness in term insurance includes heart disease, kidney failure, stroke, cancer, etc. The treatment costs of these illnesses are exorbitant and can be challenging for people with limited savings. To be prepared for such emergencies, these individuals should invest in term life insurance with critical illness rider. The lump sum payout received will come in handy for the medical expenses incurred for any of the terminal diseases.

  • People with a Family History of Serious Illnesses

    • Individuals with a family of a critical illness are more susceptible to developing the illness at any stage in their lives. They should foresee the need for a corpus to manage the treatment cost of the illness and buy term insurance with critical illness rider.

  • Primary Earners with Dependents

    • Primary earners with dependents have to shoulder the responsibility of the entire household. If they are diagnosed with a critical illness, a loss of income due to their health condition will leave them financially distressed if they do not have term insurance with critical illness rider. The medical emergency coverage available under the critical illness rider will help the family take care of expenses like utility bills payment, rent, children’s education, groceries, etc. At the same time, the policyholders can focus on recovering fast and resume their routine.

  • People over 40 Years Old

    • 40 is the age when people start developing health issues. A term plan with insurance riders such as critical illness riders will enable them to be financially secure to face medical challenges in the future.

Eligibility Criteria of a Critical Illness Rider

The policy eligibility criteria for a term plan with critical illness rider are:

Parameters

Criteria

Entry age

18-65 years

Critical Illness Benefit Ceasing Age

70 years 

Minumum Sum assured

₹50,000

Maximum Sum Assured

Lower of : ₹ 25 lakhs or

Sum Assured of the base policy

Waiting period

90 days

Survival period

30 days

Premium Payment Terms

Regular Pay - Equal to Policy Term

Premium payment mode

Same as that of the base policy

Premium payment term

Single, limited or regular pay

Diseases Covered by Term Insurance With Critical Illness Rider

The diseases commonly covered by term insurance with critical illness riders are given below. However, the list varies with the insurance company. It is imperative to review the list before purchasing the plan to ensure that it aligns with your requirements.

  • Myocardial Infraction
  • Angioplasty
  • Heart Valve Surgery
  • Open Chest CABG
  • Cancer of Specific Severity
  • Major Head Trauma
  • Blindness
  • Organ/Bone Marrow Transplant
  • Motor Neurone Disease with lasting symptoms
  • Liver Failure (terminal stage)
  • Aplastic Anaemia
  • Poliomyelitis
  • Permanent Limbs Paralysis
  • Primary Pulmonary Hypertension
  • Benign Brain Tumour
  • Lung Failure (Terminal stage)
  • Multiple Sclerosis with Persisting Symptoms
  • Burns (Third-degree)
  • Systematic Lupus Eryth with Renal involvement
  • Deafness
  • Loss of limbs
  • Muscular Dystrophy
  • Loss of Independent Existence
  • Parkinson’s disease

What Does a Critical Illness Rider Not Cover?

The exclusions under the critical illness rider are:

  • Health issues diagnosed or treated by a specialist within 4 years of the policy issue or renewal.
  • Sexually Transmitted Diseases (STDs) or complications that arise due to the condition.
  • Conditions that erupt due to the use of drugs or alcohol.
  • Suicide, self-inflicted injury, insanity, or illegal acts.
  • Non-commercial aviation activities.
  • Communal disturbances, war, or participation in violent acts.
  • Radioactive contamination from a nuclear accident.
  • Injuries due to adventurous sports like scuba diving, bungy jumping, etc.
  • Not seeking medical advice to avoid waiting periods.
  • Treatment of donor for organ replacement.
  • Illness diagnosed before 17 years due to inherited disease or disabilities.

How Does Term Insurance with Critical Illness Rider Work?

Given below are the details about a scenario where one person buys a simple term insurance plan and another buys a term insurance with a critical illness rider. Let us see how each one of them works:

For Term Insurance

For Term Insurance with Critical Illness

An individual with no lifestyle habits buys a term insurance plan for 50 lakhs till 40  years of age. 

An individual who smokes buys a term insurance plan for Rs.50 lakhs with a critical illness rider for Rs. 30 lakhs for 25 years.

The individual pays a regular premium at monthly intervals.

The individual pays the premium for the entire policy term at monthly intervals.

The individual expires during the policy term and the beneficiaries are eligible for the death benefit.

The individual is diagnosed with a critical illness specified under the plan and receives the major diseases coverage of Rs. 30.00 lakhs while the life cover of Rs.50 lakhs continues. 

The beneficiaries file the claim and receive the death benefit of Rs. 50.00 lakhs.

The individual dies during the policy term and the nominee receives the death benefit of Rs. 50.00 lakhs and the life cover ceases.

In the first case, the death benefit is provided on the unfortunate demise of the policyholder. Had the policyholder been diagnosed with a critical illness, he/she had to make arrangements for the treatment cost.

In the second case, the policyholder receives a lump sum for the treatment and other costs on the diagnosis of a terminal illness. The insured could undergo quality treatment without having to worry about hospital bills. Also, the nominee receives the death benefit on the untimely demise of the policyholder.

Important Points to Keep in Mind When Buying Term Insurance with a Critical Illness Rider

To get optimum benefit from the term insurance with critical illness rider, you should focus on the following points:

  • Illnesses Covered Under the Plan

    • You should read the policy document and check the list of critical illnesses covered to ensure that it suits you, especially for stressful lifestyle coverage. Study the surgeries and medical procedures covered under the rider. Also, look for the conditions under which the rider is valid. An extensive rider is recommended to get the maximum benefit of the rider.

  • Premiums

    • The critical illness rider attracts an additional premium. If the premium is too high, it may be a burden on your pocket as you will already be paying premium for the base plan. Hence, look for a plan that offers good medical emergency coverage at a nominal premium.

  • Waiting Period and Survival Time

    • The waiting period and survival time are the two aspects that have to be necessarily considered while buying a term plan with critical illness rider. You should ensure that these two periods are practicable and make the critical illness benefit available without any complications.

How to Buy Term Insurance with Critical Illness Coverage

The procedure to buy term insurance with critical illness cover is as follows:

  • Step 1 - Choose your coverage and policy duration

    • Evaluate the future needs of your family before buying the term insurance plan to avoid inadequate sum assured. Choose the coverage amount and policy term.

  • Step 2 - Include a critical illness rider

    • Choose a suitable critical illness rider from the list of critical illness riders available for the plan.

  • Step 3 - View premium

    • Check the premium for the term plan after adding the rider to ensure that it is affordable. You should also consider the additional coverage provided under the critical illness riders.

  • Step 4 - Pay premium

    • Finally, you proceed to the payment gateway. Choose a suitable premium payment interval. It could be monthly, quarterly, half-yearly, or yearly.

After the payment goes through, the life insurance plan with a critical illness rider will be activated.

Important Points About Term Insurance with Critical Illness Rider

The important points about term insurance with critical illness rider that you need to be aware of are:

  • The life cover under the plan is the payout the beneficiary receives in case of the death of the policyholder during the policy term.
  • The lump sum payout on diagnosis of a critical illness is the coverage available under the critical illness rider.
  • The lump sum is released immediately on the diagnosis of the illness as there is no minimum survival period clause.
  • Every term plan offers coverage for separate illnesses. The terms and conditions vary with the plan.
  • The scope for survival increases as the policyholder can afford quality treatment for the disease with critical illness coverage.
  • Check out the waiting and survival period clauses before purchasing the plan to avoid surprises during a claim.
  • The policy payment can be in a lump sum or at regular intervals for a limited term or the whole policy term.
  • Tax benefits under Sections 80C and 80D of the Income Tax Act 1961 are available.

Summary

A term plan is a great way to safeguard your family’s financial future. A term plan with critical illness rider ensures your family’s economic well-being and also averts a financial crisis if you are diagnosed with a critical illness.

The critical illness in term insurance includes heart disease, cancer, kidney failure, stroke, stressful lifestyle-induced illnesses, etc. You should evaluate the treatment cost for the critical illnesses you choose before choosing the critical illness coverage amount to ensure that you can afford quality treatment for better and speedy recovery.

FAQs on Term Insurance With Critical Illness

Q: Does a term plan cover critical illness?

Yes. A term insurance plan covers critical illness if you opt for a critical illness rider along with life cover. The add-on will enhance the plan coverage for an additional premium.

Q: Why is a Critical Illness Insurance cover essential?

A critical illness insurance cover is essential for you to feel confident that the treatment cost will be taken care of if you are diagnosed with a critical illness. You do not have to stop the treatment in between or compromise on the treatment quality if there is no worry about finances. 

Q: Are Medical Tests Important to Get Critical Illness Cover?

Yes. Medical tests are important to get critical illness coverage for the insurance company to assess the extent of risk involved in issuing the policy. 

Q: Which disease is not covered in term insurance?

Pre-existing diseases not disclosed while applying for the term insurance, self-inflicted injuries, sexually transmitted diseases, etc., are not covered in term insurance. 

Q: Is critical Illness cover with term insurance a wise choice for extra protection?

Yes. Buying a term insurance plan with critical illness coverage is a smart choice for additional protection. It provides a lump sum to the beneficiary in case of your untimely death, securing your family against financial issues. In case you are diagnosed with a critical illness during the policy term, you receive a lump sum for treatment under the long-term illness coverage, and you can undergo treatment in a reputed hospital without worrying about the exorbitant treatment cost.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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