WHAT IS A CRITICAL ILLNESS RIDER? HOW IS IT USEFUL?

Life insurance policies cover the risk of death of the policy holder during the coverage period. Besides the basic benefit, life policies offer a number of optional benefits to cover various other contingencies. One such useful addition is the critical illness benefit. This benefit is sometimes offered as a standalone product also.

Under this benefit, the life insurer pays a lump-sum amount in the event of the life assured getting diagnosed with any of the critical illnesses covered by the policy during the period of coverage. The amount paid is typically equal to or less than the sum assured under the base policy. The number of diseases covered varies from insurer to insurer, but cancer, stroke, coronary artery bypass, major organ failure, paralysis, etc, are generally covered.

Critical illness benefit is not an alternative to a health insurance or a 'mediclaim' policy offered by non-life insurance companies. In the case of a mediclaim, the benefit is limited to the expenses incurred on treatment, whereas the lumpsum benefit offered by a critical illness cover does not impose any such restriction. In case of mediclaim, the benefit amount is restricted to the maximum of the incurred expenses or the sum assured, whereas in the case of a critical illness benefit, the complete sum assured is paid irrespective of the expenses incurred. A critical illness benefit complements the mediclaim benefit. While mediclaim takes care of hospitalisation expenses, critical illness benefit can be used to cover extra costs that may be incurred while seeking treatment for a dreaded disease.

BENEFITS, CONDITIONS OF CRITICAL ILLNESS RIDER

The critical illness benefit covers illnesses that are on a pre-determined list of the policy offered by an insurer. The number of illnesses covered differs from insurer to insurer. Hence, it is necessary for the life assured to understand the benefits and conditions offered by the insurer thoroughly before selecting the benefit. The critical illness benefit will not cover any pre-existing critical illness or congenital conditions. There would be a waiting period for making a claim - a claim can only be made if a critical illness is diagnosed after the waiting period is over. There will also be a survival clause. The benefit is payable only if the life assured survives a certain period after being diagnosed with the critical illness. If death occurs before the pre-defined period after diagnosis, the benefit will not be payable.

TYPES OF CRITICAL ILLNESS BENEFITS

Primarily, insurers offer two types of critical illness benefits - non-accelerated benefit and accelerated benefit. In the case of core critical illness cover, the lump-sum benefit payable is independent of the basic benefit. That is, the payment of critical illness benefit does not affect the benefit payable under the base policy. In the case of accelerated critical illness benefit, the benefits payable under the base policy will be accelerated. In other words, the lump-sum amount paid under the critical illness benefit will reduce the benefit payable under the base policy to the extent of payments made under the critical illness benefit.

CHOOSING A CRITICAL ILLNESS BENEFIT

While purchasing a critical illness benefit, following points should be kept in mind:

* Figure out how you want the critical illness benefit - whether as an add-on benefit along with a basic benefit or as a standalone cover. Also, determine if you require a core benefit or an accelerated benefit

* Read the brochure and the key features document carefully to understand what is covered and what is not under the policy

* Shop around and weigh the benefits vis-à-vis price among insurers offering the benefits. The cheapest policy may not always be the best; it may not cover most of the illnesses

* Check whether the premiums are guaranteed or reviewed periodically

* Check for the waiting period and survival period - lesser the period, the better

* It pays to be honest and disclose any existing illnesses. This may lead to higher premium, but would be helpful at the time of lodging a claim

* It is important to disclose all material facts to the insurer at the time of application. During a claim, if the insurer detects suppression of any facts that would have influenced the insurer in underwriting the application, the insurer may not only repudiate the critical illness benefit, but also cancel the existing base policy.