Do I Need Critical Insurance Plan?

Usually people subscribe health insurance policy & assume that they are covered for all type of illnesses. But many of them are not fully aware that there is a list of critical illness (a whole list or some of it depending upon insurance companies) are not a part of health insurance policies. Those are covered under Critical illness insurance plan only. List of dieses covered under critical illness insurance such as heart attack, paralysis, stroke, kidney failure, multiple sclerosis ,cancer, aorta graft surgery, heart value surgery & so on, is sufficient self explanatory to understand its importance.

Besides this list there are some other major differences in health insurance plan & critical illness insurance plans such as minimum period of hospitalization ,police wise cash less or reimbursement of exact medical expenses, where as critical illness policy works complete differently. It pays lump sum amount to the insurer once critical illness contracted.

Obviously there are some conditions in this insurance policy as well. A concept of general waiting period remains same in this plan as it remains in all other insurance policies. However its period differs from policy to policy. But in addition to this clause there is additional condition of minimum survival period clause. which means the policy holder should survive minimum number of days from the detection of the disease which varies between 25 to 30 days from policy to policy.

Accident

Insurance companies pay the insured sum after the completion of stated survival period to the insurer. In a sense it also works as income supplement as that sum can be utilized for any purpose in addition to treatment. Also it does not required too many proofs. Policy stands terminated once the assured sum paid.

Every policy is different than other policies as some may or may not have survival clause as an exception (like in ICICI Lombard) or some policy may cover pre existing diseases after specified cooling off period. So how to chose a right policy is important question for many people.

In fact each & every clause is important in the policy but still we have to focus on some important points where one need to pay more attention such as maximum number of critical illness covered, survival clause, ,claim settlement ratio, policy renewable benefits, cost comparison.

Besides the above mentioned points more importantly insurer should focus more on hereditary & family history. Insurer with family history should seek higher amount of protection from those specific diseases. Insurere’s age is also important factor in deciding the insurance amount.

Though many people purchase critical illness policy but they are not enough aware of the word “critical” means a life threatening condition. It carries a different meaning in different dieses such as Renal failure means both kidneys should stop functioning & not the one because a person can well survive with one kidney. Same about the deafness by both ears of the policy holders & not the one ear. In case of cancer claim of 1st stage cancer is not admissible. Cancer with 2nd stage is defined as critical condition.

Apart from this some other illnesses are also not with in the scope of insurance such as critical illness arousing out of intentional self injury i.e suicide or its attempt ; HIV ; genetic disorder; drugs abuse ; alcohol; etc.

It has been observed that people are not adequately increasing the cover amount in proportionate of the inflection in general & also increasing prices of health care cost which are rising on an average 12 to 15 % per annum. Because of new technology, costly latest medicines, are also increasing the treatment cost for which timely updation of cover amount in its proportion is equivalently important.

Insurer may consider the option of rider with his life or health insurance policy. As far as terms & conditions of rider & standalone policies remains same in both. However only difference remains of increasing insurance amount at the time of policy renewal in future. In the rider critical illness policy’s insurance sum remains equal with the base policy that is main policy on which the rider is taken. Where as in stand alone policy insurer can increase the sum at the time of future renewal & due to this facility its premiums are little costly than rider.

A word of cautious about the disclosure clause .In any insurance policy, insurer is suppose to disclose all the material facts about the pre ailments at the time of policy enrollment. It is not only a responsibility but also in the interest of insurer to declare all the material facts of his pre enrollment illnesses. If in case during any claim settlement if insurance company finds suppression of material facts (happened accidentally or intentionally is immaterial), insurer may not only repudiate the critical illness benefit but also a base policy on which the rider is taken.

Three finance lessons for your child

Money skills are not taught in schools. However, they are essential for one’s growth. It is better to start educating kids at younger age.

Depending on their age kids make choices with money – whether to hang out on weekends at the local ice cream parlour, whether to go with brands or look at value. Before they take on their own financial responsibilities the skills of handling money ought to be provided to kids.

Unfortunately money skills are not part of formal school education. Many of us would have picked up some of our own financial lessons the hard way…through mistakes and corrections. That qualifies us to be a personal finance coach that the younger generation can look up to. Here is a guide to imparting essentials money to kids.


Make learning easy

From a young age children can be taught that money has purchasing power and that it needs to be earned. According to a study by a UK based advisory service, by the age of 7 years kids develop several basic concepts about money that will later broadly relate to personal finance. Some of these include the understanding that they need to pay for goods with an equivalent amount of money, the concept of earning and income.

So depending on their age and capacity you can introduce various aspects of finances. Opening a bank account for teenage kids can go a long way in helping them gain confidence and experience with handling money transactions. Many banks offer student account for school and college students. Teens can be taught how to use a debit card, and the “grown up” activities of write a cheque or DD.

Games are a nice way to engage the smaller kids. You would find many board games on money management such as Monopoly, Cashflow etc. and plenty of them are available online too.

Saving money in a piggybank

Three finance lessons for your child

i. Saving comes before spending

Kids may not have paychecks to save from but if they do have some kind of income they can be encouraged to save. Let them begin with whatever amount they can, even if it’s Rs 20 a week. The habit once formed is likely to stay with them, as some day they take on their own financial responsibilities.

You could incentivize them to drive home the virtue of saving by adding a rupee for every X amount of money they save. Another effective way is to make fun deals. Say they wish to have a camera for the next birthday. Agree to buy one for them after they have accumulated a small portion of the amount required for it. Your child would also better appreciate its value since she has earned it, in a sense.

ii. Avoiding the debt trap

One of the foundational keys to financial wellbeing is to learn to live within one’s means. You can talk to them about how debt could hurt one’s financial life and even ruin it, if in excess. Older kids can be educated on how credit card debt, personal loans can become a vicious trap.

Inculcating the savings habit discussed in the point above would go a long way in making them used to creating a corpus from which they use in the future and avoid debts.

iii. Inflation and investing

Although compared to our western counterparts many of us Indians are savers by tradition, only a minority seems to appreciate the importance of long term investing in growth assets, and even fewer people actually practice it. For many adults saving in a bank account is equivalent to investing! Teenage children can be introduced to the concept of inflation, how money loses value over time and the need for accumulated savings to outgrow inflation to help in meeting future goals.

Set a good example to follow

After all is said, one must carefully adhere to the good financial principles they’d like their child to follow. Your kids are likely to resemble you in their financial behaviour and orientation because like they say, children learn more by observing than by hearing.

By the time your child is ready to fly out of your nest he/she will have built solid foundations for his/her personal finance life.

Data Source: Bloomberg and Quantum AMC