Critical Illness Rider in Term Insurance – Do You Really Need It?

Critical illnesses like cancer, heart attacks, or strokes can strike without warning and turn your world upside down. The financial burden that follows can be overwhelming, especially if you're the primary breadwinner. But what if you could safeguard your family's future and your own well-being with a simple addition to your term insurance? Enter the critical illness rider in term insurance, a powerful tool designed to provide financial protection, not just to your dependents but also when you need it most.

The “best” plan can vary based on your individual needs, so it’s critical to do personal research or, better yet, speak to one of Ditto’s IRDAI-certified experts and get solid insurance advice. Book a 30-minute call with us today!

Overview

In this article, we'll delve into the world of critical illness riders in term insurance, exploring how they can provide a vital financial safety net during life's most challenging moments. We'll break down the two main types of riders—standard and accelerated—explaining how each works and what benefits they offer.

Whether you're looking to enhance your existing term insurance or choose a new policy, this guide will help you understand the importance of critical illness riders and how they can safeguard your financial future. By the end, you'll be better equipped to make informed decisions about protecting yourself and your loved ones against the unexpected.

What is Critical Illness Rider in Term Insurance?

Critical illness riders act as a financial cushion if you’re diagnosed with a critical ailment like cancer, heart disease, or kidney failure. But did you know there are two types of critical illness riders to choose from?

Standard Payout: These provide a lump sum payout over and above your base sum assured when diagnosed with a listed critical illness. Think of it as an extra layer of financial security.

Accelerated Payout: Here, the payout is part of your base cover. While you get immediate access to funds for treatment or other expenses, the death benefit reduces by the amount already disbursed.

The amount you receive depends on your insurer and is capped at a maximum limit specified in your policy. With term insurance plans offering different variants based on the number of ailments covered, choosing the right critical illness rider can make all the difference in protecting your financial future.

Adding a critical illness rider isn’t just an option—it’s a priority for anyone looking to secure their family’s well-being against life’s uncertainties.

Common Illnesses Covered by Critical Illness Riders in Term Insurance

Critical illness riders in term insurance policies typically cover a range of severe and life-threatening conditions. These add-ons are designed to provide financial support during challenging times, ensuring that medical expenses do not strain your finances. Here are some of the common illnesses that are often covered:

1. Cancer: Many policies cover cancer of specific severity, providing financial support for treatments and related expenses.
2. Heart Diseases: Conditions like myocardial infarction (heart attack), angioplasty, heart valve surgery, and coronary artery bypass grafting (CABG) are commonly included.
3. Stroke: This includes ischemic or hemorrhagic strokes that can significantly impact one's health and lifestyle.
4. Kidney Failure: Renal failure requiring dialysis or transplantation is often covered, helping manage the high costs associated with such treatments.
5. Major Organ Transplants: Transplants of organs like the heart, liver, or lungs are included in many policies.
6. Paralysis: Permanent paralysis of limbs can be covered, providing support for rehabilitation and ongoing care.
7. Other Conditions: Some policies may also cover conditions like major head trauma, blindness, deafness, and muscular dystrophy.

It's important to note that the specific illnesses covered can vary between insurance providers. For instance, Axis Max Life Insurance covers a comprehensive list of 64 major and minor health conditions. This is why it is a good practice to always review the policy document to ensure it aligns with your needs and health concerns.

Top Term Insurance Plans with Critical Illness Riders

With so many options to choose from in the insurance market, selecting the best critical illness rider in term insurance can be overwhelming.  Here’s a comparison of some of the top term insurance plans that include critical illness riders, helping you make an informed decision that suits your needs and budget.

ICICI offers accelerated critical illness benefit, meaning the payout amount is deducted from the term plan’s base cover. For the other four, the payout is over and above the base cover.

Tata AIA critical illness rider is renewable in 5-year intervals till the age of 75 or policy tenure end (whichever is earlier). Every renewal is subject to their underwriting guidelines.

Let us now take a deeper look at the plans presented above:

1. HDFC Life Click2Protect Super: A good plan that carries the HDFC brand name, a good track record and relatively smooth operations, Click2Protect Super is a highly customizable policy backed by a solid insurer. It offers critical illness coverage on top of the base sum assured.
   
   Key Features:

• Accidental Death Benefit
• Zero Cost Option
• Waiver of Premium (in case of disability due to accident or critical illness)
• Option to Increase Cover with Inflation
• Total Permanent Disability Benefit
• Terminal Illness cover up to 2Cr

Drawbacks: The HDFC C2P Super plan is comparatively more expensive than other policies.

2. ICICI Prudential iProtect Smart: A competitively priced term insurance plan, the iProtect Smart remains one of the few policies offering comprehensive critical illness coverage for an extended period even after the recent changes to the IRDAI regulations.
   
   Key Features:

• Accidental Death Benefit Rider
• Zero Cost  Option
• Terminal Illness Benefit
• In-Built Life Stage Benefit Option
• In-Built Waiver of Premium in case of permanent disability due to an accident
• Maturity benefits in the form of premium returns (rider)

Drawbacks: The iProtect Smart plan also doesn’t extend options to increase cover based on inflation, Waiver of premium is only incase of accidental disability and not on critical illnesses and doesn’t payout a lump sum or monthly income in the event of total permanent disability.

3. Axis Max Life Smart Term Plan Plus: A flexible term insurance plan with seven options to choose from, the Smart Term Plan Plus is perfect for individuals who want extra protection early on. It includes all the must-have add-ons you’d expect from a great term plan, plus some thoughtful perks for women, like Lifeline Plus and Maternity Cover. Overall, it’s a well-rounded, customizable plan that can fit a variety of needs.
   
   Key Features:

• Terminal Illness cover up to 1CR
• Accidental Death Benefit
• Zero Cost Option
• Waiver of Premium (in case of disability due to accident or critical illness)
• Total Permanent Disability Benefit

Drawbacks: The Max Life Smart Term Plan Plus does not extend a top-up option. The plan also doesn’t increase your cover with inflation.

4. Bajaj Allianz Life eTouch II: It is a solid term plan with several valuable riders, including a Zero Cost Option, a waiver of premiums in case of total permanent disability, and the flexibility to increase coverage upon significant life events. Another positive aspect is its respectable claim settlement record, affordability, and various discounts for salaried individuals and first-time insurance buyers.
   
   Key Features:

• Terminal Illness cover up to 2cr
• Accidental Death Benefit
• Zero Cost Option
• Life Stage benefit Option
• Waiver of Premium (in case of disability due to accident)

Drawbacks: Waiver of premium not available on critical illness. The plan also doesn’t extend an option to increase cover with inflation.

5. Tata AIA Sampoorna Raksha Promise: The Sampoorna Raksha Promise is a flexible and reasonably priced plan. It provides distinct accidental total and permanent disability rider and Hospicare benefits, which collectively provide substantial coverage at an affordable price.

• Terminal Illness cover up to 50% of base sum assured
• ATPD (Accidental total and permanent disability rider
• Waiver of premium on ATPD and Critical Illnesses
• Life Stage benefit

Drawbacks: The plan doesn’t extend a zero cost option in its non-return of premium variant and it also doesn’t provide an option to increase your cover with inflation.

Friendly Reminder: For illnesses considered less severe, some insurers like ICICI and Axis Max do not payout the entire CI rider cover; instead, they pay a partial amount (generally 25%). In contrast, insurers like HDFC Life and Bajaj Allianz do not have this stipulation and will payout a one-time lump sum payout of the entire CI rider benefit once a specified condition is diagnosed.

Weighing the Pros and Cons of Critical Illness Riders in Term Insurance

While critical illness riders in term insurance are highly recommended, it's essential to consider both the advantages and disadvantages before making a decision.

Pros of Critical Illness Riders

1. Income Replacement: When diagnosed with a critical illness, your income may be severely impacted. A critical illness rider provides a lump sum that can act as a substitute for lost income, helping you manage living expenses and maintain your family's financial stability.
2. Tax Benefits: The premiums for term insurance with a critical illness rider are eligible for tax benefits under Sections 80C and 80D of the Income Tax Act, reducing your overall tax liability.
3. Nominal Premium Increase: Adding a critical illness rider typically results in a small increase in premiums, but it offers substantial financial protection against critical illnesses.
4. Emergency Funds: The rider provides immediate access to funds for medical treatments, diagnostic tests, and other healthcare expenses, ensuring that your savings are not depleted during a medical crisis.

Cons of Critical Illness Riders

1. Potential Reduction in Base Sum Assured: If you opt for an accelerated critical illness rider, the payout is deducted from your base sum assured, which means your beneficiaries may receive a reduced death benefit. A solution for this would be to opt for a higher base sum assured (including the CI rider amount)
2. Variability in Coverage: The specific illnesses covered can vary significantly between insurers, so it's crucial to review the policy document carefully to ensure it meets your needs.

Despite these considerations, critical illness riders remain a valuable addition to term insurance policies, offering comprehensive financial protection against unforeseen medical expenses. By weighing these pros and cons, you can make an informed decision that aligns with your financial goals and health concerns.

How Much Critical Illness Cover is Sufficient?

The main question that pops in our heads once we have decided to opt for the critical illness rider is, “How much cover would be sufficient?” Well, the answer depends on many factors but to simplify things, let’s look at a conservative and a good estimate. For the former, the rider cover should be 6-12 months of your income; for the latter, the critical illness rider must be equivalent to 1-2 years of your income.

Quick Note: CI rider is always better as an add-on in term insurance because the premiums are fixed for the entire policy tenure. However, this does not negate the need for health insurance and having one is still a must for covering medical expenses. Essentially, look at the CI rider as a payout (one-time lump sum) that will help you maintain financial stability in case you are diagnosed with a critical illness; for everything else, you’ve got health insurance.

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Conclusion

Term insurance plans are undoubtedly a popular choice for life insurance thanks to their affordability and comprehensive coverage. However, incorporating the right riders can make all the difference in truly maximizing the financial safety net. An important one is the critical illness rider, which can be vital against life's unpredictable challenges. But it is not the only option; add-ons like waiver of premiums, accidental total and permanent disability riders, increasing/decreasing cover options, and life stage benefits can further enhance your policy.

This is why it's crucial to compare different variants and riders to find the best fit for your needs and budget. By doing so, you can create a customized policy that not only protects your family's financial future but provides lasting peace of mind during life's uncertainties.

Whether you're looking to secure your family's well-being or ensure your own financial stability, the right combination of term insurance and riders can be a powerful tool in your financial planning arsenal. So, take the time to assess your needs, weigh the pros and cons, and choose wisely to ensure that your term insurance plan is more than just a safety net—it's a comprehensive financial shield.