The Role of Critical Illness Riders in Both Health & Life Insurance Plans

A critical illness can seriously affect a person’s health and finances. Medical treatments are expensive, and recovery can often take a long time, leading to income loss. Thus, having a critical illness rider is a must to gain coverage under such circumstances.

Read on to learn more about the role of critical illness riders in your health and life insurance plan, their benefits, coverage, tax advantages and other aspects.

What is a Critical Illness Rider?

A critical illness rider is a standalone cover that pays a lump sum if the policyholder is diagnosed with a specified critical illness, such as cancer, kidney failure, stroke, etc. Both health and life insurance policies provide it.

The coverage amount will help with medical expenses, loss of income, and other financial needs while the policyholder is treated for the disease.

Critical Illness Riders in Health Insurance

Health insurance plans provide coverage for hospitalisation overheads, but this will not be enough to cover expensive treatments like chemotherapy, organ transplants, and heart surgeries. That is where a critical illness rider becomes helpful.

Key Benefits of Critical Illness Rider in Health Insurance

Here are some key benefits of critical illness riders in health insurance:

• Lump-Sum Payout: Unlike traditional health insurance, critical illness riders provide you with a lump sum amount in case of specified illnesses.
• Covers Non-Hospitalisation Costs: This payout can be used for rehab, home care, or lifestyle modifications.
• No Dependency on Hospital Bills: Individuals receive a lump sum payment as specified in the policy, regardless of the hospital bill.
• Financial Security During Recovery: It helps manage the loss of income due to a long-term illness.

What is Covered in a Critical Illness Rider for Health Insurance? 

Medical conditions that are typically covered in critical illness riders are:

• Cancer (except early-stage)
• Heart attack (severe cases)
• Kidney failure
• Stroke (resulting in permanent symptoms)
• Organ transplant
• Paralysis
• Multiple sclerosis
• Alzheimer’s & Parkinson’s disease

Critical Illness Riders in Life Insurance

Most life insurance policies protect the nominee's financial interests if the insured dies. However, this does not apply when the insured individual is diagnosed with a critical disease. That is why many life insurance policies are offered with a critical illness rider.

How Does It Work?

• If the policyholder meets with a critical illness covered under the policy, the assured sum will be paid immediately.
• This does not impact the death benefit, which the nominee is supposed to receive in case of the policyholder’s demise.

Key Benefits of Critical Illness Rider in Life Insurance

Here are some key benefits of critical illness riders in term insurance:

• Financial Support During Illness: The payout helps with treatment, medicine bills and household expenses.
• Protection Against Lifestyle Diseases: Rising cases of heart disease, stroke and diabetes-related complications make this rider a handy one.
• Continued Family Support: After using the critical illness payout, a partial or full sum assured may still be available for the family (depending on the plan).

Why Should You Buy a Critical Illness Rider? 

Mentioned below are some of the major reasons to consider buying a critical illness rider:

1) Medical Inflation is Rising

Healthcare costs increase each year. Standard health insurance plans do not cover the treatment of critical illnesses, which can cost ₹10-50 lakhs and are beyond their coverage limit.

2) Income Loss During Treatment

A critical illness rider differs from regular health insurance, which pays only for hospitalisation. It covers non-medical expenses like rent, loans, etc., if the policyholder cannot work.

3) Higher Coverage at a Lower Cost

A critical illness rider is a cheaper form of critical illness insurance. You can avail yourself of it as an ‘add-on rider’ in your existing health or life insurance plan to cover your hospital expenses.

4) Tax Benefits on Critical Illness Riders

Individuals are liable for several health insurance tax benefits under Sections 80D and 80C of the Income Tax Act upon purchasing a critical illness rider:

• Health Insurance (Section 80D): In a health policy, the premium paid towards a critical illness rider is applicable for tax benefits up to ₹25,000 per annum for individuals below 60 and up to ₹50,000 for a senior citizen.
• Life Insurance (Section 80C & 80D): If the rider is part of a life insurance policy, then the tax deduction for the premium can be claimed under Section 80C (for life insurance) and Section 80D (for health-related riders).

Key Differences: Critical Illness Rider vs. Other Insurance Covers

The table demonstrates the difference between the critical illness rider and other insurance covers:

Feature	Health Insurance	Critical Illness Rider (Health)	Critical Illness Rider (Life)	Standalone Critical Illness Plan
Coverage Type	Covers hospitalisation & treatment costs	Pays lump sum upon diagnosis	Pays lump sum upon diagnosis	Pays lump sum upon diagnosis
Payout Structure	Reimburses medical bills	Lump sum amount	Lump sum amount	Lump sum amount
Premium Cost	High	Low	Low	Medium
Tax Benefits	Yes (80D)	Yes (80D)	Yes (80C & 80D)	Yes (80D)
Best For	General medical expenses	High medical costs & income loss	Financial support during illness	Extensive coverage of critical illnesses

How to Choose the Right Critical Illness Rider?

Before buying a critical illness rider, you should consider the following:

1) Number of Diseases Covered

The types of critical illnesses covered under critical illness riders vary across insurers. They may cover more than 30 illnesses or only a small fraction of the most common critical diseases. Choose a plan that covers widespread and high-cost illnesses.

2) Coverage Amount 

If a critical illness affects your earning ability, you must cover at least 3-5 years of your expenses through the coverage amount. Always opt for coverage of at least ₹10-25 lakhs.

3) Waiting Period

The waiting period for most critical illness riders is 90 days from policy issuance. Purchase only after you have a thorough idea of the terms.

Standard Exclusions in Critical Illness Riders

Critical illness plans exclude certain conditions, including those diagnosed during the waiting period (usually 90 days) and before treatment. To receive compensation, policyholders must survive a period between 14 and 30 days after diagnosis.

Other exclusions include self-injury, injuries due to war or civil unrest, injuries from hazardous activities, and illnesses caused by substance abuse. For example, infertility treatment, sexually transmitted diseases, cosmetic surgery, as well as overseas treatment are not usually covered.

A critical illness rider should always accompany a healthcare and life insurance policy. It provides a lump sum for medical bills, way-of-life expenditures, and income loss. With increasing medical costs and rising instances of critical diseases, such riders offer an additional financial cushion.

So, if you plan to buy a new policy or upgrade from your current one, consider adding a critical illness rider to protect yourself and your wealth in the long run.