What is critical illness insurance? Do you need it?

While life insurance & health insurance are topics covered extensively by media, one rarely reads or hears about critical illness insurance. Every time I have tried telling people about the need for this product, I get a strange look followed by “didn’t we just discuss my health cover”, as not many can distinguish between the two.

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Critical illness insurance pays you the sum insured on being diagnosed with a critical illness which is covered under the policy, provided you survive for the minimum survival period as per the terms of the policy.

Health insurance policy will reimburse the cost incurred by you including hospitalization, diagnostic tests and medicine for a specified number of days pre and post the illness.The critical illness policy will pay you the sum insured on being diagnosed with an illness covered under the policy “no questions asked”. Critical illness is not a reimbursement plan.

Most of us underestimate the chances of being diagnosed with a critical illness. As per a newspaper article published a couple of years back “It is estimated that by 2020 cardiovascular disease will be the cause of over 40 per cent deaths in India. India is set to be the ‘heart disease capital of the world’ in few years” The treatment for the same can set you back by 3 to 7 lakhs.

As per another article in Business Today a couple of years back “millions are grappling with the prohibitive cost of cancer treatment in India, where the disease has wiped out entire life savings and even forced some people to sell their homes” It further gives indicative cost of treatment. I have reproduced that paragraph in italics below.

“Breast cancer patients, need targeted treatment drugs, such as Herceptin or Herclon, made by global major Roche, which cost around Rs 75,000 for a course; a patient could need up to 17 courses. Similarly, a drug called Avastin – used to treat colon, kidney, lung and gall bladder cancer – can add around Rs 8 lakh to a patient’s bill at around Rs 1 lakh a cycle”.

It is worth noting that the above estimates take only treatment costs and do not factor in other costs related to inability to work and lifestyle changes associated with the illness.

So how is a critical illness different from a health insurance?

A health insurance reimburses expenses incurred due to hospitalization and medical expenses related to the hospitalization. Critical illness insurance pays the entire sum insured on being diagnosed with a critical illness covered under the policy. It is not a reimbursement and hence has nothing to do with hospitalization.

What should you look for in a critical illness policy apart from the premium?

One should primarily look at illness covered & survival period apart from the premium while deciding on the policy. It may be worthwhile to note, that your application for a policy may be rejected by the insurance company and hence it may make sense to apply to a company who is likely to accept your application. This information can be obtained from somebody who deals with these companies regularly.

What are Illnesses covered under a critical illness policy?

The number of critical illness covered differs from company to company. You also get policies which cover one single illness example Cancer Care. Some of the more common critical illnesses include

  • Heart attack
  • Cancer
  • Paralysis
  • Coronary artery bypass surgery
  • Major organ transplant (e.g. heart, lung, liver, pancreas)
  • Stroke
  • Kidney Failure

What is Survival period?

Most critical illness policies come with a survival period which could range from a few days to a few months. This essentially means you need to survive the pre-specified period after being diagnosed with the illness to be eligible for a claim.

Who should opt for this policy?

This policy ensures that the financial burden of illness is circumvented and hence everybody should opt for it. People with family history and primary bread winners should definitely ensure that they are adequately insured.

What does it cost?

The premium is based on age, the premium for a healthy 30 year old for 20 lakhs policy should be approximately INR 7,500. Like in the case of health insurance the premium will increase with increase in age and is not fixed.

Are there any tax benefits?

Premium paid towards critical illness insurance can be claimed as deduction under section 80 D, the limit of this section have been increased in the recent budget. Under Section 80D, the premiums paid towards health insurance/critical illness policies for self, spouse, children & parents are allowed as a deduction. For this FY the limit has been raised to INR 25000,for senior citizens the limit is INR 30,000. I have written on this subject earlier and am giving you a link to the article. http://finwise.in/blog/?ph=412 

Should we take a stand alone policy or opt for a rider with an existing life insurance policy?

When you opt for a critical illness rider with your life insurance policy the premium remains constant throughout your tenure. Whereas with a stand-alone policy it increases every time you cross the age slab. The issues with opting for a rider are two. Firstly these riders are taken when you buy the policy and you may not be able to opt for it at a later stage. So if you already have a life insurance policy you may not be able to add-on a rider now. Secondly the sum insured in a critical illness rider may be limited and may not suffice. My Suggestion would be to go in for a combination of both with the purpose of having adequate insurance.

While it is good to hope for the best, it is equally important to plan for the worst. Let us endeavor to keep illness at bay and double our time invested in fitness. At the same time take adequate measures to mitigate the financial risk arising out of the illness. God forbid if you were to be diagnosed with a critical illness, there should be nothing which stands between you and the best healthcare possible.

 

Finwise is a personal finance solutions firm that helps individuals and families plan for their financial goals, follow their passions and achieve financial independence. For consultations, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

The impact of increased Section 80D limits on your health insurance

 

A month back I had written on the impact of budget on your personal finances, I had followed it up with an article on Sukanya Samruddhi Account, let’s now see what increase in 80D limits can mean for your health insurance.

30-percent-offWhat is section 80 D?

Under Section 80D the premium paid towards health insurance policy for self, spouse, children & parents are allowed as a deduction. Cost of preventive checkup for self and family as defined above,up to a limit of 5000 subject to overall limit of 25000 is also allowed as a deduction under this section. With effect from this year the limit has been raised to 25000 there is a further increase of 5000 for senior citizens

 

Are you asking us to buy an insurance just to save tax?

No! of course not! We strongly believe that your financial decisions need to be totally based on needs and goals, only after you have ascertained the need for a product or an investment should you look for tax optimization. Well, having said that all of us are aware of the ever increasing cost of health care. Just last week my daughter had a minor fall in her school needing a small procedure at the hospital which lasted all of 15 minutes. The bill for the same was a whopping 26,000! I am sharing this incident just to bring home the steep increase cost of good health care.

This being a reality, having adequate health insurance for your family is absolutely imperative.

Yes, but all this was always the case! What has the budget got to do with it?

What the budget has done can be compared to a discount sale on your favorite garment brand. Come sale season many of the well-known brand shops are swarmed with people trying to take full advantage of the offer. Why then should you not treat this opportunity differently? Isn’t it a discount offered in disguise? Assume you don’t have health insurance even though you recognize the need for it and you pay tax at the highest bracket. If you do buy the insurance and claim deduction under section 80 D your premium would be deducted from your taxable amount subject to maximum limits discussed above. You therefore have a choice of looking at it as discount at your tax rate on your health insurance premium.

Fine, we get it but what about the insurance we already have?

If you already have a health insurance, great! What you need to evaluate is if the sum insured is adequate. Having a very low sum insured defeats the very purpose of insurance. Ball park if you have a floater than a minimum of 10 lakh cover would be required. For an individual the minimum would be 5 lakhs. If you find that your current insurance is small. You have the option of going in for a top up or add on cover.

These covers come with a deductible and cost very little. A deductible means that the insurance covers any amount incurred above the deductible limit. For example if you have a deductible of 2 lakhs, for every hospitalization the first 2 lakhs will have to be borne by you and any amount incurred over and above 2 lakhs will be reimbursed by the insurance company. You can opt for a deductible equal to your current insurance & use the top up to increase your cover.

My company covers me, why would I duplicate insurance?

Many companies offer health insurance as part of package and opting for it is normally a good deal. This is because a lot of conditions are waived off for group insurance which is not true for individual insurance. Pre-existing diseases for example will not be covered under your individual policy but will be taken care of in most cases in a group policy

. Despite the apparent advantages being dependent solely on company provided cover can be a little dicey cause you may fall sick or worse have an accident when you are in between jobs. The bigger risk however is the fact that when you retire and desperately need insurance you may be diagnosed with lifestyle diseases like diabetes or hyper tension and may be uninsurable. A top up insurance would come in handy in your case, because you would be limiting your losses to the deductible amount even at a later stage. And the premium for a top up insurance would cost you as much as a meal in a fancy restaurant.

Another problem which I encountered in my own case was, while we were covered for medical expenses by my husband’s company to the extent of 80% of the bills the company had not insured with anybody. This essentially means that when the reimbursements were made they became taxable. So if I incur an expense of 1 lakh the company would reimburse 80% or eighty thousand and we would end up paying tax of twenty four thousand. Which means my reimbursement post tax would be fifty six thousand. If I were to have a personal medical insurance (which I do) I would have been reimbursed the entire sum spent and no tax is applicable on the same.

Given below is the premiums applicable for top up insurance from Apollo Munich (company chosen randomly), this is to give you an idea of how cheap these insurances really are.

apollo

For a 40 year old in the highest tax bracket the family can be covered from 3lakhs to 13 lakhs at Rs.9,112+ service tax. If you factor in the tax deduction under 80D you could consider the cost of insurance at 70% of the premium which is Rs.6378+ Rs.898 service tax. Should you decide not to go ahead you would end up paying 3000 tax anyway.

You also need to keep in mind that while your parents may not be dependent on you financially, you would chip in, in case of a medical emergency. The premium as you get older is pretty steep. Instead of forgoing the option of insuring them you could consider the top up option and limit your losses. Again insurance paid by you towards parents’ health insurance is available as deduction under 80D. If your parents are senior citizen you would get a maximum deduction of 30000 over and above the limit of 25000 available for self, spouse and children.

Go ahead evaluate your health insurance and buy your peace of mind. May the beginning of the financial year bring you peace happiness and health. Do leave your queries and experiences as comments.

 

Finwise is a personal finance solutions firm that helps individuals and families plan for their financial goals, follow their passions and achieve financial independence. For consultations, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

Looking at buying a term life policy online or offline? They now come with a whole lot of frills, do you actually need them?

We attempt to uncomplicate life insurance and give you a brief on why you should or should not opt for the many add-ons which have now become a part of term life insurance.

best fit insurance
Thanks to the media and the financial planner fraternity, most of you aware that marrying your investment needs with insurance is not a wise option. It is best to separate both and go for plain vanilla term plans when it comes to life insurance.

At the cost of adding to the clutter of various articles being written on the above subject, let me reiterate the reasoning behind this. Life insurance is meant to buy you peace of mind so that in case of an untimely death your dependents are spared the financial burden of having to get on with life without the bread winner!

When it comes to life insurance, most of us ask “While I pay premium what do I get if nothing happens to me?” The answer to this is simple – “You paid for the peace of mind that you would be providing for your family even if something were happen to you”. Well, this answer just doesn’t suffice and we are happier with a product which pays us if there is loss of life and pays something even if we were to live up to a ripe old age and survive the policy period. Money-back and endowment policies endeavor to do just that and give you a policy with a bit of insurance and a bit of investments. The problem is the insurance offered is often so small that it’s meaningless andthe investments rarely give you returns in excess of 7% inflation. The matter gets further complicated since these policies have huge penalties attached, should you realize your folly later and try to cut your losses short.

We all agree on the virtues of a simple online term plan. Term plans however are not as simple as they used to be. Various clever ways have been now designed to increase your premium to offer you perceived benefits. Let us take a look at some of these iterations/add-ons and give you our thoughts on these

Tenure of insurance beyond retirement age: Term insurance is a risk transference tool by which you transfer the risk of loss of income for dependents due to your untimely death. Since there is no income post retirement the entire purpose of term insurance is defeated and it normally does not make sense to continue your term insurance post retirement.
However unlike health insurance, in life insurance the premium is fixed for the entire tenure of the insurance. The premium is primarily dependent on the age at which you take the insurance apart from factors like smoking, general health, etc. This premium will remain the same throughout your insurance period and does not increase with age. Say if you were to take insurance for Rs. 1 crore at age 40 and your premium is Rs 20000. The premium will remain 20000 even at age 65. Meanwhile the value of the 20000 would have diminished to close to Rs 4000 in 25 years at an average inflation of 7%. Therefore with reduced value of money, the premium will actually seem very small and insignificant in 25 years from now. If the insurer is willing to insure you why forgo it after so many years? The sum insured could form part of estate of the deceased.
In view of the above we believe longer insurance term actually makes sense!

Accident Death Benefit: With this feature as an add on, the sum insured is doubled or increased on death due to accident for payment of a small additional premium.
The amount of life cover you require depends on current expenses, financial goals and assets in hand. When you arrive at the amount to be insured in a scientific manner you can be rest assured that your obligation will be met irrespective of your presence.
What one needs to bear in mind is irrespective of the reason for death, the amount required to fulfill your obligation will remain the same. An exception would be the hospital expenses incurred in case of an accident.
We suggest you do not combine accident insurance with term life primarily because the purpose of an accident insurance is to protect you in case of disability and the ensuing loss of income due to the accident. In view of this we suggest that you go in for a separate accident insurance to cover you in case of disability whether permanent or temporary.

One time premium payment option: This option lets you pay premium one time and have insurance cover as per the tenure selected. Considering the value of your money keeps diminishing due to inflation and you are losing out on the opportunity cost, this is not such a good option in our opinion.

Limited premium pay option: This option allows you to pay premium for a restricted number of years and enjoy the tenure for a longer time. Essentially you could pay higher premium for say 20 years even though your tenure is 25 years. The argument against this is the same as the previous point since as the value of money keeps diminishing, financially it is a better option to pay less today rather than pay more now to avoid paying at a later date especially so since the premium does not increase later.

Sum assured paid as part lump sum and part annuity: In this option the insurer offers to pay part of the sum insured upon death and rest as annuity spread out over specified number of years. This may suit survivors who do not have the ability to earn basic return on investment or the discipline to set the insurance proceeds aside to take care of life’s emergencies.
By and large it is advisable to take the entire sum insured and outsource the job of earning decent returns without undue risk to a qualified financial planner like a CFP, in case the nominees do not have the band width to do the same.

Return of premium
When you buy a term plan with return of premium, the sum assured is paid to nominee in case of death and the premiums are returned to the life insured in case he/she survives the entire tenure. This gives you the illusion of free insurance. You need to factor in the potential of the premium paid to earn interest and reduction in value of money due to inflation. This option does not seem attractive.
For example normal term plan with ICICI prudential for a 35 year old male for 10 lakhs sum insured and tenure of 10 year would cost you 2878 but return of premium plan will cost 37,193. If the difference in premium were to be invested in a safe instrument giving 8% returns post tax it would build you a corpus of 5,36,874 which is far in excess of return of premium which would be 3,71,930. This difference is taking a very conservative return of 8%, given the long period for which you stay invested, you could easily better this returns increasing the gap wider. Plain term insurance is therefore better than return of premium plan.

Finwise is a personal finance solutions firm that helps individuals and families plan for their financial goals, follow their passions and achieve financial independence. For consultations, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

8 things you must know regarding health insurance policy


1. Exclusions:

Almost all health care policies come with exclusion i.e. no cover for treatment for a specific period or a specific time frame or a combination of both
• All treatments within the first 30 days of cover except any accidental injury are excluded
• Preexisting disease by definition are those disease which are in existence prior to opting for a health care policy and have to be mentioned in the proposal form for the policy to be valid. Treatment for preexisting disease is not covered generally for a period of 36 to 48 month from the time of taking the policy. The waiting period differs from policy to policy
• 2 years waiting period for specific diseases like cataract, hernia, joint replacement surgeries, surgery of hydrocele etc.
This list is indicative and not exhaustive, westrongly recommend you go through the exclusions in detail before opting for the policy

2. Cashless

Insurers or the third party administrators who facilitate insurers have to tie up with hospitals for cashless hospitalization, the list of hospitals where the insurance company have tie up is available easily and it is important to check the list to ascertain if there are adequate number of hospitals in the list and to find out if the hospital you are most likely to go it in case of a planned procedure is part of the list. While a hospital could be covered for cashless hospitalization at the time of taking the policy it is not necessary that this arrangement continues. It is quite possible that cashless facility with a particular hospital is discontinued at a later stage, therefore it is essential to check the list of hospitals for cashless facility on a periodic basis. While treatment is possible in hospital where the tie up does not exist, it comes with separate terms and conditions. The bill needs to be paid first and claimed later

3. Sub limits

Some policies have sub limits i.e there are predetermined maximum caps for certain procedures, room rent etc. This essentially means no matter what the cost of the procedure or room rent is, the policy will reimburse upto a predecided maximum cap. Example if you pay Rs. 5,000 per day for room charges and your policy has a sublimit of 2,000 per day for room charges you will only be reimbursed Rs. 2000 and the remaining Rs 3000 will have to be borne by you. It is desirable to have a policy which does not impose such limits. In case you have an existing policy this would be good time to understand the limits considering you are not in the midst of an emergency.

4. Renewability

Some policies have maximum coverage age beyond which they do not renew insurance. Since medical insurance is a yearly contract it is imperative to check this aspect. It has greater relevance given the fact that companies shy away from insuring an older person with preexisting diseases.

5. Adverse Loading

When there are claims against your policy some companies increase premium to compensate them for increased claims. Which means you may end up paying higher than normal premium charges for your age if you have claimed the previous year. Some do not indulge in such practices. Once your policy is accepted without any special conditions or additional loading, premiums are purely based on age.

6. No Claim Bonus

The reverse of the above is also true and all companies incentivize you for a claim free year, majority of them offer no claim bonus which is an increase in the sum assured this can range anywhere between 5% and 50% per year. Example Suppose X has a policy for 3 lakhs and does not have any claim in a particular year , in case of 5% NCB the sum insured will be 3,15,000 for the next year in case of 50% NCB the sum insured become 4.5 lakhs for the next year. The amount of no claim bonus depends on the policy opted for.

7. Co payments

Policies sometimes have Co -payment conditions. That is a certain percentage of the expenses incurred will have to be borne the insured. Example a 10000 policy with 20% co-payment rule requires that incase of claim of Rs.10000 you bear cost of Rs.20000 while the insurance company bears Rs.80,000 While some policies make this optional and give discounts in premium for opting for such a facility others have a mandatory rule.

8. Add on policies

As per many newspaper report medical costs are increasing at an alarming rate every year. If you have a basic insurance and now feel you are not adequately insured you can go in for an add-on policy which covers with a deductible. The premiums by virtue of design of these products are very low and affordable. It may be economical to opt for two polices one for basic and one with deductible to keep your premium at acceptable levels.
Deductible are amount beyond which the insurance company will entertain claims. Example if your policy is for 10 lakhs with a deductible of 3 lakhs it would mean that the company will entertain claims beyond 3 lakhs upto 13 lakhs. These policies also have terms and conditions and it is absolutely essential to understand them before you choose to go for it.
Should you have any further queries on the same feel free to drop in an email to prathiba.girish@finwise.in will be glad to be of assistance to you

5 things you must know about your car insurance

Buying a car insurance has indeed become a breeze, thanks to online presence of General insurance companies you can switch, renew or buy afresh within minutes. Is the premium charged the only criteria for your choice of insurer? Cheapest premium does not necessarily mean value for your money. Hear is why.

Car insurance typically has two components to it
Third party liability insurance: this covers liability for injuries and damages to others that you are responsible for
&
Own Damage Cover: damage to the vehicle due to perils like fire, theft etc are usually covered under own damage section of the Motor Insurance policy:

While third party liability cover is compulsory as per the law, own damage cover is not. However it is advisable to go in for a policy which covers both. Policies covering both own damage and liability cover are normally referred to as Comprehensive package/ Policy. While the premium charged for third party liability is decamp by IRDA. The own cover premium is fixed by the insuring company.

1) The company charging you the cheapest premium may not necessarily mean value for your money

The premium charged for own cover is dependent on a lot of factors like IDV “Insured’s Declared Value”. IDV reflects the maximum amount payable by the company in case of a total loss of the vehicle. It is possible for a company to charge you a lower premium and provide you a lower IDV thereby limiting their liability in case of own damage.

Other factors which you should take into consideration for making an apple to apple comparison are deductibles and coverage. Deductible is the amount over and above, which the claim will be payable. There is a normal standard/ compulsory excess for most vehicles ranging from Rs. 50 for two wheelers to Rs. 500 for Private Cars and Commercial Vehicles which increases depending upon the cubic capacity/ carrying capacity of the vehicle. However, in some cases the insurer may impose additional excess. Higher educible reduce the premium.

2) You can port your policy from one company to another and carry forward your no claim bonus

Porting your policy from one company to another is actually simple, all you have to do is initiate the process a fortnight in advance, this is to ensure you have enough time to compare and renew without letting your existing policy lapse. No claim bonus is the discount give to you on your own damage premium for claim free year. The percentage of discount increases with every claim free year and is a maximum of 50%. No claim bonus will be carried forward to the new insurance company.

3) No claim bonus for your old car can be carried forward to your new car

This is something which most of us is unaware of, if you are upgrading you would be having insurance on your existing car which in all likelihood would be sold off. The no claim bonus that you have accumulated on your existing car can be carried forward to the new car.

The procedure is as follows. You can transfer the policy in the name of the buyer of the car and get a no claim bonus certificate or no claim bonus reservation letter from the insurance company. On producing this letter you can earn a discount on the premium. When you upgrade your car the price is substantial and transferring your no claim bonus could lead to good savings

4) Your policy can be transferred in the name of the person who buys your car from you.

The insurance can be transferred to the buyer of the vehicle, provided the seller informs in writing of such transfer to the insurance company. A fresh proposal form needs to be filled in. There is a nominal fee charged for transfer of insurance along with pro-rata recovery of NCB from the date of transfer till policy expiry. It may be noted that transfer of ownership in comprehensive/ package policies has to be recorded within 14 days from date of transfer failing which no claim will be payable for own damage to the vehicle

5) If you let your policy lapse you stand to lose out on benefits and face huge inconvenience in renewing the same.

If you let your policy lapse due to oversight or any other reason you could face a lot of inconvenience. If a lapsed comprehensive motor insurance policy requires renewal you need to fill up a fresh proposal as if you were insuring a new vehicle. The insurance company will offer the insurance only after a physical inspection of the car to check for pre existing damages which needless to say will not be covered by the insurance company. They may also charge you a higher premium or downright reject your proposal. If the policy is in lapsed state for 90 day and above you will lose out on the No claim bonus accumulated thus far. It is against the law to drive a vehicle without insurance and hence you will not be able to use your vehicle in the period when your lapsed policy has not been renewed. Any loss whether due to theft or natural calamities will not be covered in this period. It is therefore prudent to keep a close watch and renew insurance well in time to give you peace of mind.