Introduction
Say you have been suddenly diagnosed with an ailment that leaves you with a prognosis of only a few months. How do you prepare your family for it financially? Do you divert your savings for a cutting–edge medical treatment that offers you a chance at enhanced quality of life, or do you set it aside for savings to secure your family’s future financially - your child’s higher education/marriage/childbirth and your spouse’s financial stability?
Such decisions suggest that you have to compromise with either of the choices. However, what if you had a sudden influx of funds that would be an additional cover to aid you during such a crisis? Well, that’s terminal illness benefits in term insurance plans.
Now, if you have opted for a term insurance policy, you know that riders in term insurance are crafted to help you customise the policy as per your tailored financial requirements and goals. Considering the rising demand across such customisations, multiple-term insurance add-ons emerged. Undoubtedly, such add-ons are a crucial part of a term insurance plan. However, to be classified as one of the best term insurance policies, a plan must have some in-built perks, too. This includes an affordable premium, substantial death benefit, limited restrictions, multiple payout options, AND terminal illness benefits.
So, is terminal illness a deciding factor when choosing a term insurance plan? Should you opt for term insurance plans that offer terminal illnesses? What are the pros and cons of terminal illness perks in term insurance plans in India? And is there a difference between terminal illness benefits and critical illness riders in term insurance policies?
Here’s what we think!
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What are Terminal Illness Riders in Term Insurance Plans?
Terminal Illness Benefits in term insurance plans are a financial perk that kicks in when a policyholder is diagnosed with a terminal illness (with a prognosis of less than 6 months). The amount so disbursed is paid in a lump sum and can be used at one’s discretion to fund treatments, hospice care, savings, mutual funds, real estate, etc.
To gauge the working of terminal illness benefits in term insurance, here are a few pointers that you should remember -
- In general, terminal illness benefits in term insurance plans are in-built perks.
- The funds disbursed in case of a terminal illness diagnosis are part of the base sum assured. Thus, after the disbursal of terminal illness funds, you have to expect a reduced payout as a death benefit.
- To access the funds for terminal illness benefits, you need to send a written declaration of the ailment's prognosis to the insurer. The insurer’s doctor will cross-verify the medical declaration, and then the fund will be disbursed as a lump sum.
Now, let’s take an example to understand terminal illness benefits in term insurance plans -
Ashmita is a 30-year-old (mother of 1), who, following certain health complications, approached a doctor. Unfortunately, she receives a terminal diagnosis - she has small cell lung cancer with a prognosis of 3 months at the most. The news devastates her and naturally has her worried about her son’s future. She wants to leave some funds for him to aid him in his future life goals.
Being a financially smart person, she had already availed of a term insurance plan (of ₹2 crores) when she was 20 (since it was affordable, offered lower premiums for women, had a locked-in premium, and extended extensive coverage along with lucrative features and add-ons like Critical Illness Rider, Waiver of Premium, Terminal Illness, and more). Upon receiving the diagnosis, she
STEP 1: Approaches her term insurance provider,
STEP 2: Offers written declaration by her doctor regarding her prognosis,
STEP 3: Waits for the insurer’s medical team to cross-verify the diagnosis and
STEP 4: Receives the pre-decided amount (which is a party of the base sum assured) of ₹1 crore.
She utilises this amount to create a savings account for her son. A few months later, following her death, her spouse receives another ₹1 crore (the balance cover amount), which is again set aside in his savings account.
Should You Opt for a Term Insurance Policy with Terminal Illness Rider?
As mentioned above, terminal illness benefits in term insurance surely extend a long queue of financial perks. However, much like any other financial product, terminal illness benefits in term insurance plans also come with a set of pros and cons. Before you purchase a term insurance plan with terminal illness benefits, you need to weigh out the pros and cons and decide if the purchase is a financially smart one -
- What are the Pros of Terminal Illness Riders in Term Insurance Plans?
- Act as an income replacement — Term insurance plans are generally crafted to replace policyholders' income. A terminal illness benefit boosts this perk further. When a policyholder is diagnosed with a terminal ailment, his/her source of income is severely compromised. The funds from terminal illness benefit enable the policyholder and his/her family to continue with their short-term and long-term goals without any financial hiccups despite the absence of a source of income.
- Emergency funds during medical duress - A diagnosis of a terminal illness may soon be followed by a requirement of critical medical in the form of hospice, medical checkups, and second opinions. Needless to say, such medical care is not exactly pocket-friendly and may take a toll on your savings. However, suppose you have a terminal illness benefit in your term insurance plan. In that case, your insurer will disburse a lump sum that can be used to fund expenses to improve the quality of life for the remaining days.
- No additional premiums are required - Terminal illness benefits are usually built-in features in the plans offered by top-notch term insurers. Hence, you are not required to invest in any additional premiums. The premium paid towards your base sum assured should cover the terminal benefit, too, along with the death benefit perks.
2. What are the Cons of Terminal Illness Riders in Term Insurance Plans?
- Reduced death benefit - The sum disbursed upon the diagnosis of a terminal ailment is a part of the base sum assured.
Say you have a term insurance cover of ₹3 crores. The terminal illness benefit is capped at ₹1 crore. If diagnosed with a terminal illness, the insurer offers you ₹1 crore. Now, when your beneficiary claims for the death benefit, your family will receive a maximum of ₹2 crores.
- Obtaining the written declaration of the prognosis - Have you ever wondered why fewer people are opting for term insurance plans than health insurance policies? Well, though inevitable, it’s difficult for people to accept and plan for their deaths. Inevitably, the scenario has undergone some major changes following the pandemic outbreak. However, India still struggles with the concept. Subsequently, doctors in the country are not usually straightforward about the exact prognosis of terminally ill patients.
Under such circumstances, obtaining written documentation of the prognosis of a terminally ill patient is a cumbersome situation. Without a written declaration, applying for a terminal illness benefit perk is impossible. This suggests that despite having a terminal illness perk in place, you will miss out on the benefits.
Now, it’s clear that the pros of terminal illness benefits in term insurance plans outweigh the cons. Thus, terminal illness benefits can be a good purchase when choosing a term insurance policy. Additionally, please remember that, unfortunately, over the last decade or so, multiple health complications have become quite common, thanks to our sedentary lifestyle, eating habits, and the recent outbreak of the pandemic. Under such circumstances, having a terminal illness benefit might just be the smart financial move.
What are the Best Term Insurance Plans with Terminal Illness Riders?
Terminal illness benefits are an in-built feature, which doesn’t leave you with a lot of choices about whether you should opt for it or not.
Moreover, the best term insurance plans (that have terminal illness perks) come with multiple other perks that make them a great pick for potential term insurance policyholders. Here is a look at some of our top picks across term insurance plans that come with terminal illness benefits -
- MAX LIFE Smart Secure Plus: This term insurance plan from Max Life is one of the best in the industry. It is comprehensive and affordable, offering a diverse range of built-in features and riders. These include a terminal illness benefit, three variants of critical illness riders, a voluntary top-up sum assured, a joint life cover option, a premium break option, a waiver of premium plus, and a disability rider.
Drawbacks: None that we could find.
2. HDFC LIFE Click2Protect Super: The Click2Protect Super plan offers an in-built terminal illness benefit and a smart exit perk, making it comprehensive but slightly pricier than the Click2Protect Life policy. It comes in three variants: Life, Life Plus, and Life Goal, and includes a range of riders such as Waiver of Premium on Critical Illness, Return of Premium, Waiver of Premium on Total and Permanent Disability, Spouse Cover Option, Option to Alter Premium Frequency, Option to Change Premium Payment Term from Regular Pay to Limited Pay, Renewability Option at Maturity, Life Stage Option, and Death Benefit as an Instalment Option.
Drawbacks: This is a tad bit pricier that the other policies in its category.
3. ICICI PRUDENTIAL iProtect Smart: This is the only term insurance option offered by ICICI Prudential Life. The policy provides four variants for death benefit payout options: lump sum, income, lump sum plus income, and increasing income. Additionally, there are four plan options based on different combinations of riders: Life, Life Plus, Life and Health, and All In One. These plans include Waiver of Premium and Terminal Illness Benefit, Waiver of Premium due to Disability, Accidental Death Benefit, and Critical Illness Benefit.
Drawbacks: The insurer’s overall operation proficiency is a bit concerning.
4. BAJAJ ALLIANZ LIFE eTouch: This term insurance plan from Bajaj Allianz Life is quite popular. The plan is affordable and comes in three variants: Life Shield, Life Shield Plus, and Life Shield Return of Premium. These variants offer various combinations of riders, including: Terminal Illness, Waiver of Premium, Accidental Death Benefit Rider, and Return of Premiums.
Drawbacks: The plan lacks the Critical Illness Benefit Rider, Inflation Shield, etc.
5. TATA AIA Sampoorna Raksha Supreme: The plan offers three variants for death benefit payouts: Life Option, Life Plus Option, and Life Income Option. It includes built-in features such as terminal illness benefits, life stage benefits, top-up sum assured, and premium payment flexibility. The policy is comprehensive and affordable, offering riders such as Accidental Death Benefits and Accidental Total and Permanent Disability Benefits, among others.
Drawbacks: TATA AIA needs to focus on its overall operational efficiency.
Before opting for a term insurance plan, make sure that the insurer has a Claim Settlement Ratio or CSR of 97 and above, an Amount Settlement Ratio or ASR of 90 and above, a low complaint volume, and a decent average annual business income.
But, here’s something that you should know - often, potential policyholders stand confused, thinking that terminal illness benefits in term insurance and critical illness riders in term insurance are the same. Honestly, they couldn’t be far from the truth. Such confusion may end up in the policyholder losing out on tapping into the complete potential of a term insurance plan - they can think that opting for a critical illness will also cover their terminal ailment. Thus, purchasing a term insurance plan with terminal ailment benefits is redundant.
However, they couldn’t be far from the truth -
What is the difference between terminal illness benefits and critical illness riders in term insurance plans?
While both terminal illnesses benefit and critical illness riders extend funds to the policyholders in times of medical emergencies to term policyholders, the similarity ends there -
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Conclusion
While terminal illness benefits in term insurance may not be a deciding factor when choosing a term plan, the availability of this perk is a welcome notion. Policyholders can stand to benefit from this perk, considering the urgent disbursal of a substantial (pre-decided) amount (that can go up to the base sum assured). This lends some peace to the insured since they can witness the disbursal of the funds during their lifetime. Also, the perk comes free, so why not tap into its potential?
FAQs
- What is considered a terminal illness for insurance?
If the policyholder approaches a doctor and is provided with a prognosis of less than 6 months, the ailment diagnosed is a terminal illness for term insurance plans.
2. Should you take terminal illness coverage with term insurance?
With most of the best term insurance plans, terminal illness coverage is an in-built feature. Thus, you don’t really have a choice in the matter.
3. How does terminal illness cover work?
Let’s take an example to understand how terminal illness benefits in term insurance works -
Shamim is 35 years old with a term insurance coverage of ₹5 crores and a terminal illness benefit that is capped at ₹2 crores. When he turned 40, he approached a doctor with certain health conditions. The doctor diagnoses him with renal failure and gives him a maximum of 4 months to live.
Shamim forwards this prognosis in a written format to his insurer, who cross-checks the same with the in-house medical team. Shamim receives ₹2 crore as a terminal illness benefit that can be used to fund diverse requirements.
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