Use World No Tobacco Day to evaluate your financial preparedness vis-a-vis critical illnesses

With about 100,000 Indians expected to be afflicted with lung cancer this year, the World No Tobacco Day on Tuesday is a good day to evaluate your financial needs to handle critical illnesses caused by tobacco.

It is also a day when each individual can examine his financial preparedness to combat, not just cancer, but broadly any dreaded disease that can take a heavy toll on his family’s health and financial well-being.

The incidence of critical illnesses is rising. India will have 1.4 million new cancer cases in 2016. Nearly 60 million citizens suffer from insulin disorder. The cost of treating these dreaded diseases is exorbitant. Cancer treatment can cost anywhere between Rs 4 lakh and Rs 10 lakh a year. A kidney transplant can cost Rs 8 lakh or more, while a bypass surgery can cost Rs 4-8 lakh.

Every family of three, where the father’s age is 35, should have a family floater cover of at least Rs 5 lakh. This should be increased to at least Rs 10 lakh as soon as the eldest member enters the 40s, or earlier, if the family has a history of critical diseases. Families should also augment their cover with policies such as critical illness rider, critical illness policy or a top-up policy. A recent survey done by ICICI Lombard General Insurance of about 1,000 respondents found that 57 per cent don’t hold a health insurance policy, while 77 per cent have a regular mediclaim but not a critical illness policy or a top-up cover. This highlights the state of unpreparedness in our society.

A critical illness cover makes a payout as soon as the disease is diagnosed. Says Antony Jacob, chief executive officer (CEO) at Apollo Munich Health Insurance: “The money received can act as a substitute for loss of income. It can also be used to pay for medication, which in the case of a disease like cancer, has to be continued for three-four years.”

This cover can be bought as a rider or as a policy. The premium rate of a rider remains the same over its life. If it changes with age, the increases are stated upfront. A critical illness policy is less expensive initially than a rider, but its premium increases with age. “One can’t say whether a rider or a policy will be more cost-effective over a lifetime because there isn’t enough historical data,” says Arvind Laddha, CEO of Vantage Insurance Brokers.

If you are going to buy this cover, go for a policy. “A policy will cover 25-30 ailments while a rider may cover only 8-10,” says Rahul Agarwal, founder director, Ideal Insurance Brokers. Critical illness policies, however, have a couple of disadvantages. “They cover only a specific list of diseases and even those diseases have to be of a specified severity,” says Agarwal.

A cost-effective way to meet the high cost of a dreaded disease is to supplement a mediclaim policy with a top-up cover. The latter is not very expensive. For a family of three where the oldest member is 40, a floater top-up for Rs 10 lakh will cost Rs 7,300. A top-up policy covers you for all diseases and, hence, offers comprehensive protection.

While buying a top-cover, look at one criterion above all. “The deduction should be calculated on an annual and not per hospitalisation basis,” says Laddha. Suppose a person has a top-up policy of Rs 10 lakh and a deduction of Rs 5 lakh. He gets hospitalised twice in a year and his bill comes to Rs 4 lakh each time (Rs 8 lakh in all). His top-up will get activated if the deduction is calculated on an annual basis, but not if it is calculated on per hospitalisation basis.