What is Critical Illness Insurance and How it Works?

What is Critical Illness Insurance and How it Works?

The Critical Illness Insurance is similar to a health insurance plan. This insurance comes into picture if the insured acquires a serious disease. It is also known as the Dread Disease Policy. It is additional coverage for life-threatening ailments like heart attack, cancer, and heart stroke. However, it covers 30 most critical illnesses which include paralysis, kidney failure, organ transplants, etc. Because the expenditure on treating these medical conditions is much greater than any other normal disease. Thus this policy ensures cash payout if need be. Wherein other standard insurance policies may fail to accommodate the hefty financial expenses.

Critical illness insurance is applicable immediately after the diagnosis of the illness. The policy calculates the amount paid by the insured when opting for this insurance and gives an approximate payment in cash for the treatment of the above mentioned serious ailments.

They mention the final amount in the insurance policy. Also, it is defined on the basis of per episode of treatment. In some cases, the insurers inform well in advance if they’ll be sending the money directly to the hospital chosen by you. This avoids lengthy reimbursement procedures. It also avoids incurring expenses out of the pocket of the insured.

Dr. Marius Barnard found the CI insurance. And the release of the first product was on 6 October 1983.


What expenses does Critical Illness Insurance cover?

If you acquire any of the critical diseases, this policy caters to the care and treatment expenses.

It also helps you pay off debts by giving a tax-free, one-off payment for recovering mortgages, rent payments, renovations to the insured person’s house and to cope up with the loss occurred because of the reduced ability to work.

So, you may be thinking, what should be the sum insured amount for all this? Well, there is no specific amount that one should consider while opting for the critical illness cover. But one should consider it based on the insured person’s age, income, and lifestyle. However, the study suggests one should opt for at least ten lakh amounts cover if their age is around 35 years and the amount may increase as per the insured person’s age and health.

Read Also: What is the best age to get life insurance?

Another question in your mind can be, what if there are pre-diagnosed conditions? Then similar to life insurance, if a person has a medical history of any of the above mentioned critical illnesses, the policy will count, but with increased premium charges or limited accessible benefits, depending on the individual insurer.


How long does it take to claim a Critical Illness Insurance?

Because any critical illness requires complex details to be analyzed and structured, it may take around 8 weeks to process. However, in the case of the income protection slab, the process might stretch up to 12 weeks.

There are two ways of claiming this insurance. They are:

  1. Use a portion of the cover amount in repaying a debt upon contracting the illness and then the remaining amount would be repaid to the dependents of the policyholder upon death.
  2. The full sum of the cover is paid at once to the policyholder, implying that no other payments would be made upon death, also termed as ‘accelerated death payment’.


Life Insurance or Critical Illness Insurance?

Critical illness insurance can be purchased by anyone in addition to life insurance or term assurance policy. Also, it is suggested that an insured must take life insurance first and add a second layer of protection as the critical illness cover, due to the depleting lifestyle patterns that we’ve been following lately.

Critical Illness Insurance pays on the death of the insured too. In case of death, the critical illness along with the basic life insurance pays you a lump sum amount. However, it is a one-time payout, if the sufferer dies due to a critical illness, the critical illness policy will overrule and the life insurance will no longer be effective.

You can even take two critical insurance policies. If you have 2 critical illness policies from different providers, you can claim both if need be. And both the insurers will pay a lump sum amount.


What is the Survival Period and Tenure of Accessibility?

The survival period is the minimum number of days that the policy expects the policyholder to survive. They start from the first day of the diagnosis of the illness. Also, it varies from company to company. And the most common is 14 days.

And Tenure of accessibility is the time within which you can claim or say access to the policy. The critical illness insurance policy is active for 40 years. And the policy should end before you turn 70. Also, the minimum term length is 2 years.


What if you make a false claim?

The policy comes into effect after you get diagnosed by a physician or a specialist in that particular area. Contact your insurance agent and inform them about the situation.

Also read: Do you need life insurance after retirement?

Making any false claims or self-diagnosed claims can result in the cancellation of your policy. That too getting anything in return.


Here are Some Benefits of Critical Illness Insurance-

  1. Can balance your income requirements- Although the above mentioned serious ailments have a major impact on the physical strength of an individual, they drastically impact the financial stability of the entire family. The critical illness cover provides an average of medical expenses plus the basic household needs. Relaxing the hustle for everyone.
  2. Reduces last moment panic- With the policy intact, the insured doesn’t have to bother about immediate payments. They don’t have to work themselves out in arranging funds for basic needs and the expansive treatment. They can focus on their well-being first.
  3. Foreign country treatment is applicable- The policy claims are flexible with your treatment decisions. They put no restrictions on treatment in the USA or abroad. They also consider the choice of the individual pertaining to further medical treatment.
  4. It covers overall expenses- Unlike the regular health insurance, which caters to the hospitalization expenses only, the critical illness policy adequately covers all other expenses like the loan EMIs, basic household expenses, school and tuition fees, etc.



All in all, the Critical Illness Policy pays the amount as an income replacement. Hence, the insured can use the amount in whatever form they want, without seeking permission from the insurer. It is a big relief when you are face to face with problems. Also, it is hard to prepare for such problems as they come unexpectedly. Thus, insurance is the best preparation we can do! Some of the good insurance companies are Chubb, United Health, etc.

We hope you liked the article about critical illness insurance and it was informative. If there is something you want to add to the article, please mention it in the comments. You can also ask your queries there.