Author: Rupanjali Mitra Basu

Last week I was reading the newspaper when an article caught my attention. Apparently, more and more Indians were becoming a victim to various types of non-communicable diseases. Hypertension, diabetes, pulmonary disorders, cancers of different organs, etc. were becoming alarmingly common according to the article. While the article highlighted the burden of diseases on the Indian population, another thought ran parallel in my mind – medical inflation. The cost of medicine is touching the roof and given the increasing probability of illnesses, a financial crisis is evident. A health insurance plan becomes important to combat this financial crisis. Moreover, there are critical illness plans too which prove beneficial in major illnesses. But, most of us consider health plans and critical illness plans same and interchangeable. Are they?

They are not and if you have any doubt, here is a brief understanding of a health insurance plan and a critical illness plan along with the differences between the two. Read on:

Health insurance plans

Health insurance plans offer an exhaustive scope of coverage. Some common expenses covered in all health plans include in-patient hospitalization, pre and post hospitalization, day care treatments, ambulance costs, organ donor expenses, etc. A health plan is designed to cover all expenses related to a medical emergency which requires hospitalization.

Critical illness plans

Critical illness plans provide coverage for a specified list of illnesses mentioned in the policy contract. If you get diagnosed with any illness covered by the plan a lump sum benefit is paid which is equal to the Sum Insured selected.

Difference between health insurance and critical illness plans

Though a critical illness plan is a type of health insurance plan, it has major differences when compared to a health insurance plan. Let’s understand the differences:

• Coverage provided

A health insurance plan has a list of coverage features. It covers all your medical expenses right from being transported to the hospitalization through an ambulance, to being treated and recuperating at home after being discharged. Moreover, coverage for AYUSH treatments, domiciliary hospitalization, restoration of Sum Assured, maternity expenses, etc. is also provided by various plans. These coverage features are absent in a critical illness plan. The plan only covers specified illnesses and nothing more.

• Sum Insured

Health insurance plans allow a higher coverage amount compared to critical illness plans. There are health plans where the allowed Sum Insured goes as high as Rs.5-6 crores. However, critical illness plans do not have such high coverage. Under critical illness plans, the maximum Sum Insured levels range between Rs.10 lakhs and Rs.25 lakhs.

• Benefit structure

Health insurance plans are indemnity plans which pay the actual cost of hospitalization. In case of a claim, you have to submit your medical records and all relevant bills. The insurance company then pays the costs incurred subject to a maximum of the Sum Insured. Critical Illness Plans, on the contrary, are fixed benefit plans. These plans pay the Sum Insured if you are diagnosed with any covered illness. The benefit payout doesn’t depend on the actual expenses incurred. The money received from a critical illness plan can be used to meet any expenses whether you want to pay off your liabilities or receive the best treatment. However, the claim received under a health plan is solely for the medical costs incurred and cannot be used for any other purposes.

• Premiums

Since health insurance plans offer a more exhaustive coverage, the premiums they charge are, naturally, higher. Critical illness plans, on the other hand, are cheaper than health plans in terms of premiums.

Now you see how a critical illness plan and a health insurance plan are different from each other? So which one should you buy?

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A health insurance plan is imperative given its coverage features. It provides an all-round coverage for your medical contingencies and is a must. A critical illness plan can be taken as an additional coverage option. It would give you an additional coverage against the financial crisis faced in case of a critical illness. However, a health plan cannot be substituted for a critical illness plan. It is a necessary cover and should be given first preference. Read more why choosing a right policy is essential.

Read also What is insurance and how does it works?

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Read more about Dejargonizing health insurance terms

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The National Sample Survey Office conducted two surveys on medical incidences and their costs. The first one was conducted in 2004 while the second was in 2014. The results were surprising and disappointing. According to the reports, about 3% out of 1000 Indians faced hospitalization in 2004. The number increased to 4.4% in 2014. Not only did the incidence of hospitalization increase, treatment costs too saw a spike in the decade. The hospitalization cost increased by about 176% for an urban individual. Disappointing, isn’t it? (Source: https://qz.com/663718/charted-the-incredible-rise-in-the-cost-of-healthcare-in-india/ ). Moreover, even the common ailments, nowadays involve huge expenses. See for yourself:

(Source: https://economictimes.indiatimes.com/the-rising-cost-of-medical-treatment-infographic/tomorrowmakersshow/50187991.cms )

Whew! Can you afford a medical emergency knowing the costs involved?

Given the financial crisis faced in a medical emergency, people buy health insurance plans. But, most of them make a mistake of choosing a low Sum Insured. Is it wise?

Read more about 6 tips to reduce health insurance premiums

The health insurance plan compensates you up to the maximum extent of the Sum Insured you have selected. Thus, it is always recommended to choose a higher Sum Insured in your health insurance plan. If the above medical costs were not reason enough, here are some more for choosing a higher Sum Insured:

You can protect your savings

In life you have various financial goals for which you save. You might save for financing your child’s education, for buying a home or car, for your child’s marriage or for your retirement. If you encounter a medical contingency, you would face huge medical bills. If you have a health plan with a lower Sum Insured you would have to draw upon your savings to pay for the costs not paid by your health plan. In such a situation, not only your goal-planning goes out the window, your savings are drained and you have to start from scratch. Would you want that?

Higher Sum Insured gives sufficient coverage for family members

If you have a family floater plan, having a higher Sum Insured becomes all the more important. Since your family shares the Sum Insured of your health plan, in case of multiple claims in the same year a lower Sum Insured would fall short. If you opt for a higher Sum Insured, you can be assured that your family members would be sufficiently covered under your health plan.

Read more about family floater plan

Is a higher cover affordable?

Though you might understand the importance of having a higher Sum Insured, you might find affordability to be a hindrance. After all, a higher Sum Insured entails a higher premium too. This affordability issue can be resolved if you opt for top-up or super top-up plans.

What is a top-up plan?

A top-up plan is a health insurance plan which increases your Sum Insured without pinching your pockets. Under a top-up plan there is a Sum Insured and a deductible limit. If any health claim exceeds the deductible limit, the top-up plan pays the claim.

For instance, if you buy a top-up plan of Rs.5 lakhs with a deductible limit of Rs.2 lakhs, in case of any claim which is more than Rs.2 lakhs, the top-up plan would be applicable. So, if you incur a claim of Rs.2.5 lakhs, the top-up plan would pay Rs.50, 000.

What is super top-up plan?

Super top-up plan works like a top-up plan. The only difference is while a top-up plan considers each instance of claim against the deductible limit, a super top-up plan aggregates the claims incurred in a year and then matches it against the deductible limit.

For instance, you buy a super top-up plan of Rs.5 lakhs where the deducible is Rs.2 lakhs. If you incur a claim of Rs.1 lakh, nothing would be paid in both top-up and super top-up plans. In the same year, if you incur another claim of Rs.1.5 lakhs, the top-up plan would pay nothing. But, the super top-up plan would pay Rs.50, 000 because the aggregate claims (Rs.1+1.5 lakhs) exceed the deductible of Rs.2 lakhs.

Top-up or super top-up plans can be taken to supplement your coverage level. If you have an existing health plan, choose a top-up or super top-up plan in such a way that the Sum Insured of your existing health plan is equal to the deductible limit of your top-up or super top-up plan. In that case, any claims up to the deductible limit would be paid by your normal health plan and any excess by your supplemental plans.

A higher Sum Insured is necessary in a health insurance plan if you want to combat the high medical costs. So, choose a health plan with an optimal coverage level based on your needs. If affordability is a concern, choose top-up and super top-up plans but don’t shirk on the coverage.Here is why health insurance is necessary.

Read also An anatomy of an health insurance plan

Read more about Dejargonizing health insurance terms

Feel free to share your comments below

Insurance has become an integral part of our financial plan given the coverage benefit it provides. An insurance policy compensates us against any financial loss faced due to premature death, ill-health and other unforeseen emergencies. A life insurance plan and a critical illness plan are two important insurance plans which find relevance in our lives. While a life insurance policy covers us against the risk of premature death, a critical illness plan provides financial assistance in case we suffer from a critical illness. While both these plans are important, are they same?

Comparing a critical illness plan with a life insurance one is like comparing apples and oranges. While both are insurance plans covering specific risks, they are very different from one another. Let us understand how?

What is life insurance?

Life insurance is an insurance policy which primarily covers the risk of premature death and the financial loss suffered thereof. The policyholder chooses the plan tenure and the coverage amount. If the life insured dies during the chosen tenure, the chosen Sum Assured is paid. If, the plan matures, the maturity benefit would depend on the type of plan selected.

What is critical illness plan?

A critical illness plan is a health plan under which specified critical illnesses are covered. If the insured suffers from any of the covered illness during the term of the plan, the chosen Sum Insured is paid.

Read more about benefits of critical illness policy

Difference between the two

A life insurance plan and a critical illness plan are two different plans which cover different risks. Here are some important points which highlight the differences between a critical illness plan and a life insurance one:

• Contingency covered

A life insurance plan pays a benefit if the life insured dies during the term of the plan. Thus, it essentially covers the risk of premature death.

A critical illness plan, on the other hand, covers the risk of suffering a critical illness.

• Coverage amount

There is, usually, no upper limit in choosing the Sum Assured under life insurance plans. The minimum Sum Assured usually starts from Rs.50, 000 or Rs.1 lakh and there is no maximum limit. Moreover, the Sum Assured for life insurance policies should be selected based on one’s financial requirements.

Critical Illness plans impose a limit on the Sum Insured offered. The maximum allowed Sum Insured is, usually, around Rs.10 lakhs – Rs.25 lakhs. The choice of the Sum Insured depends on the policyholder and should be done based on the expected medical costs which would be incurred in case of suffering any major illness.

• Plan variants and need fulfillment

Life insurance plans come in different variants. There are term insurance plans, traditional endowment and money back plans, pension plans, market-linked ULIPs, children plans, etc. While term plans help in income replacement, pension plans build a retirement corpus. Child plans help create a secured financial future for the child while ULIPs fulfill the need of wealth creation. Thus, different life insurance plans fulfill different needs and the policyholder can choose any type of plan as per requirement and financial need.

Here is how life insurance works

There are no variants of a critical illness plan. The only notable difference between different critical illness plans is the list of illnesses covered. Different plans cover varying number of critical illnesses. Moreover, critical illness plans do not fulfill any other need except providing funds for facing a critical illness.

• Benefits paid

A life insurance plan pays a death benefit or a maturity benefit. The benefit might be paid in lump sum or, if chosen, in instalments (annual or monthly). Moreover, various plans also pay bonus and loyalty additions.

A critical illness plan pays a lump sum benefit only if the insured is diagnosed with any of the covered illnesses. There is no maturity benefit payable under these plans.

Here are the benefits of a critical illness plan

• Term

Life insurance plans are long term plans ranging from a term of 5 years to whole of life. Critical Illness plans, on the other hand, are offered as one-year plans and can be taken for a continuous period of 2 or 3 years too.

• Premiums

Since life insurance plans provide a wider scope of coverage, the premiums are higher than those charged for critical illness plans.

• Tax benefits

How can we forget tax benefits of insurance plans? In case of life insurance plans, premiums paid are tax-free under Section 80C and the benefits received are tax-free under Section 10 (10D). There is an upper limit on the exemption of premiums and the limit is Rs.1.5 lakhs.

Premiums paid for critical illness plans are tax-free under Section 80D. The maximum exemption allowed is up to Rs.60, 000 if you also cover your dependent parents who are senior citizens.

So, life insurance plans and critical illness plans are widely different from each other. You cannot substitute one for the other. Both these plans serve a different need and should be included in your financial portfolio.

Read more about Separate health insurance plans for parents of floater?

Read also An anatomy of an health insurance plan

Read more about Dejargonizing health insurance terms

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A health insurance policy covers the costs incurred if you face a medical emergency – you all know that. But do you know how to make a successful claim in your health insurance plan?

Insurance, by its very nature, is a technical concept. Though you might buy it after understanding its features, it is at the time of claim that most of you feel clueless. While it is true that making a health insurance claim has a protocol, once you understand the simple process, making a claim would no longer be difficult.

A health insurance plan has two types of claim settlement process – cashless and reimbursement. Do you know how each works and their respective advantages and disadvantages? Let’s find out:

What is cashless claim?

Under a cashless claim settlement process, when you are admitted in a network hospital, the insurance company directly settles your medical bills with the hospital. You do not have to shoulder any expenses yourself. That is why it is called a cashless claim.

What is reimbursement claim?

Under a reimbursement claim process, you have to first shoulder your medical bills. After you get treated and are discharged from the hospital, you have to submit the relevant bills to the insurance company. The company then reimburses the medical costs you incurred.

Difference between the two

Cashless and reimbursement claim processes are very different from each other. Let us understand the main differences between the two:

Pros and cons of cashless claim settlement

Advantages

• Since the insurance company takes care of all relevant medical expenses, you don’t have to face any financial burden.
• Minimal paperwork is involved in this claim process.

Disadvantages

• You have to seek hospitalization only in a networked hospital to avail cashless benefit. In any medical emergency you might not be able to find a networked hospital in your vicinity. This would be a major setback as treatments in a non-network hospital would be done only on reimbursement basis.

Pros and cons of reimbursement claim

Advantages

• You can get treated in any hospital and later get the bills settled.

Disadvantages

• You have to face the financial strain of any hospitalization. You would get reimbursement only when you are discharged from the hospital and the treatment is complete.
• A lot of bills, certificates and reports are required to be submitted to the insurance company for availing reimbursement of your claim. Since the documentation process is cumbersome, you might get confused. It also delays the whole claim settlement process which usually takes a lot of time.

Many health insurance plans have cashless claim settlement process inherent in their health insurance policies. It is because insurance companies understand the benefits of a cashless claim settlement process and want their customers to have a hassle-free claim settlement process. In some cases you might have to contact the Third Party Administrator (TPA) which acts as an intermediary between you and the insurance company in case of cashless claim. However, to eliminate any middlemen, insurance companies have now developed an in-house claim settlement department where your cashless claims are coordinated and settled directly by the insurance company. This cuts down the unnecessary hassles and makes the process faster.

All said and considered a cashless claim settlement process is your best bet. It is financially liberating and helps in cases when you, the breadwinner seek medical assistance. Your family is liberated from the burden of paying your medical bills and the company takes care of them itself. So, when you are looking for health insurance plans, choose cashless over reimbursement. You would be grateful! Here is how you can get the best health insurance plan.

Read this if your Cashless claim was rejected and  know how to deal with it.

Read more about Separate health insurance plans for parents of floater?

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Do you have more than 1 health insurance policy and wondering how to claim? Check out our video to know more

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