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Critical Illness Rider vs Health Insurance – Why Both Are Important?

A critical illness rider and a health insurance policy are very different products. While a critical illness rider is an additional benefit that you have to add to your base term insurance plan when you buy it so that you (or the policyholder) can receive a specific amount of money upon getting diagnosed with one of the many critical illnesses registered by the insurer. 

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Whereas, health insurance is a financial contract between the insurer and the policyholder wherein the insurer provides assistance during medical emergencies. Usually, health insurance plans are valid for one year and must be renewed after this period

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What is a Critical Illness Rider and how does it work?

A Critical Illness rider in Term Insurance provides financial support, in the form of lump sum payout, if the policyholder is diagnosed with a critical illness during the policy term, like kidney failure, stroke, or cancer. This rider increases the coverage of the term insurance plan and upon diagnosis of one of the critical illnesses covered by the insurer, the sum assured can be claimed to cover expenses such as ambulance charges, doctor fees, or medical bills. You can easily add the Critical Illness rider when you first buy the term insurance or during any policy year. This benefit comes at a nominal additional premium.

While the critical illness rider is an additional benefit that can be added to your base term plan, it acts like an extra layer of proetction against a difficult battle of life. However, term insurance in itself is a plan that provides financial support to the family of the policyholder in the form of regular income payments in case he/she unfortunately dies during the policy term. Therefore, term plans are also called Income Replacement Insurance Plan.

Here is a list of all the critical illnesses covered by term insurance:

Cancer of Specified Severity Motor Neuron Disease with Permanent Symptoms Third Degree Burns Brain Surgery
Myocardial Infarction - First Heart Attack of Specific Severity Multiple Sclerosis with Persisting Symptoms Alzheimer's Disease Surgery of Aorta
Open Chest CABG Benign Brain Tumor Aplastic Anaemia Rheumatoid arthiritis
Open Heart Replacement and Repair of Heart Valves Blindness Cardiomyopathy Severe Crohn's Disease
Coma of Specified Severity Deafness Medullary Cystic Disease Ulcerative colitis
Kidney Failure Requiring Regular Dialysis End Stage Lung Failure Muscular Dystrophy Pneumonectomy
Stroke Resulting In Permanent Symptoms End Stage Liver Failure Parkinson’s Disease Pulmonary Artery Graft Surgery
Major Organ/Bone Marrow Transplant Loss of Speech Poliomyelitis Progressive Scleroderma
Permanent Paralysis of Limbs Loss of Limbs Systemic Lupus Erythematosus (SLE) with Lupus Nephritis Bacterial Meningitis
Primary (Idiopathic) Pulmonary Hypertension Major Head Trauma Apallic Syndrome Good Pasture's syndrome
Creutzfeldt-Jakob disease Spinal stroke Benign spinal cord tumour Multiple system Atrophy
Fulminant Viral Hepatitis Syringomelia or Syringobulbia Devic's Disease Encephalitis
Dissolution of the nerve roots of Brachial Plexus Chronic Recurrent Pancreatitis

Let’s understand how the critical illness rider works with the help of this example:

Nisha, a 30-year-old non-smoker, bought a 1 Crore term insurance with a 25 Lakhs critical illness rider for a 30 years policy term. After being diagnosed with a covered critical illness, she received 25 Lakhs from the insurer (as part of critical illness rider) while her 1 Crore policy remained intact. Upon her unfortunate death during the policy term, her nominee received the 1 Crore death benefit, and the policy ended.

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What is Health Insurance and how does it work?

Health insurance is a financial contract between the policyholder and the insurer, in which the insurer provides financial coverage to the policyholder for medical expenses up to a certain limit. It covers costs for medical emergencies and planned hospitalizations. Additionally, premiums paid for health insurance offer tax savings under Section 80D of the Income Tax Act, 1961.

Let’s understand how the health insurance works with the help of this example:

Ramesh, a 30 year old man, buys a health insurance policy with a cover amount of Rs. 7 Lakhs. He pays a yearly premium of Rs. 9,574 to the insurance company. Later, Ramesh needs a surgery that costs Rs. 4 Lakhs. Instead of paying the full amount himself, his health insurance covers the cost up to his coverage limit, significantly reducing his personal financial stress.

Wrapping it up!

Health insurance and critical illness riders have their individual differences. While health insurance covers a wide range of medical expenses and hospital visits, a critical illness rider specifically provides a lump sum payment if diagnosed with a critical illness like stroke, cancer, blindness, etc. You must be very well informed before choosing whether to buy term insurance and then add the rider, or to directly go for health insurance. You can also buy both and avail their individual benefits.

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