Many people mistakenly assume that terminal illness and critical illness are the same in term insurance, but in reality, they are quite different from one another. Terminal illnesses are diseases that are incurable and are expected to be fatal. On the other hand, critical illnesses are severe but treatable conditions.
Knowing the difference between these two is important, as a life insurance policy may include terminal illness coverage, but not critical illness coverage (or vice versa). By understanding this difference, you can make informed decisions and ensure you have the right coverage for medical expenses or other commitments.
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Difference Between Terminal and Critical Illness Riders in Term Insurance
| Basis | Terminal Illness | Critical Illness |
|---|---|---|
| Definition | An incurable disease which leads to death in a short time | A severe illness requiring expensive treatment but not necessarily fatal (Like early stage cancer, angioplasty, muscular dystrophy) |
| When can you claim | When you are diagnosed with a fatal disease or accident, in the opinion of your treating doctor & the insurance company's doctor, and is expected to result in death within a specified period (often 6 months), despite all possible treatment. | When you are diagnosed with an illness that is on the insurer’s critical illness list |
| Policy Coverage | Usually, an inbuilt rider in term-life insurance policies | Usually covered under critical illness riders, standalone plans, or even health insurance plans |
| Life Expectancy | Life expectancy is significantly shortened | It may have long-term effects, but you can recover |
| Difficulty in claims | It is challenging to get a doctor to confirm the terminality of the ailment. | Easier since the covered illnesses are specified and defined. |
What is Terminal Illness Coverage in Term Insurance?
A terminal illness is a medical condition that is not curable and is expected to result in death within a short period. When a person is diagnosed with a terminal illness, doctors generally estimate their life expectancy to be between six months and a year, depending on the disease’s progression. Such conditions require palliative care to manage pain and maintain comfort, as treatments can no longer be effective. Patients with terminal illnesses frequently experience declining health and need extensive medical support and financial resources for their well-being.
Certain diseases, such as late-stage cancer, advanced heart disease, and neurological disorders, are commonly classified as terminal illnesses. Late-stage cancer is one of the most well-known examples, as it makes treatment ineffective when the cancer has spread beyond control. These types of conditions need regular care & monitoring, and financial stability is an important aspect of managing such diagnoses. This is where a terminal illness cover comes in and helps the family with these expenses.
Once the insurer pays out the terminal illness cover out of the base term plan, they may either terminate the policy (if the entire balance is paid out) or continue it with a reduced cover amount, depending on the policy’s terms. Unlike indemnity-based health insurance policies that reimburse hospitalization and treatment costs, a terminal illness benefit provides a lump-sum payout. This can be used freely for medical care, household expenses, or even personal arrangements.
| Term Insurer | Plan Name | Terminal Illness Cover (Accelerated Payout) |
|---|---|---|
| HDFC Life | Click 2 Protect Super | Upto ₹2CR |
| Axis Max Life | Smart Term Plan Plus | Upto ₹1CR |
| ICICI Prudential | Iprotect Smart | Entire Base Plan |
| Bajaj Allianz Life | E-Touch II | Upto ₹2CR |
| TATA AIA | Sampoorna Raksha Promise & Maharaksha Supreme Select | Upto 50% of Base Cover Amount |
What is Critical Illness Coverage in Term Insurance?
A critical illness is a severe medical condition that needs extensive treatment and can significantly affect a person’s life – whether to work or carry out daily activities. Unlike terminal illnesses, which are expected to lead to death within a short time, critical illnesses do not necessarily pose an immediate fatal threat. However, they often need long-term medical care, rehabilitation, or surgical intervention. The treatments to contain this can be quite expensive, with high hospitalization costs, medications, and even therapy.
Certain medical conditions are classified as critical illnesses due to their severity and cost of treatment. Heart attacks (myocardial infarction or MI) are one of the most common critical illnesses, which often requires angioplasty or bypass surgery and lifelong medication.
Many insurers offer critical illness coverage as a rider in a term insurance policy or as a standalone plan. This provides a lump sum payout upon diagnosis of a critical illness in the insurer's critical illness list. Once again, unlike an indemnity-based insurance policy, which reimburses your bills, critical illness insurance directly pays the person insured a fixed amount. This allows them to use the amount as an income replacement or for medical expenses, hospital stays, or even personal needs such as lifestyle modifications and household support.
| Insurer | Plan Name | Number of Illnesses | Duration offered (years) |
|---|---|---|---|
| HDFC Life | Click 2 Protect Super | 60 | 15 |
| ICICI Prudential | iProtect Smart | 34* | 30 |
| AXIS MAX | Smart Term Plan Plus | 22/64 | 20 |
| Bajaj Allianz Life | E-Touch II | 10/25/60 | 20 |
| TATA AIA | Sampoorna Raksha Promise & Maharaksha Supreme Select | 40 | 5** |
ICICI offers accelerated CI, meaning the payout amount is subtracted from the term insurance base cover. For the other 4, the payout is over and above the base cover. : TATA AIA CI rider is renewable in 5-year intervals subject to their underwriting guidelines, till age 75 or the base plan tenure end (whichever is earlier)
How Does Insurance Cover Terminal and Critical Illnesses
Consider Ramesh, who has both a critical illness rider and terminal illness benefit in his term life insurance plan.
At age 50, Ramesh suffers a heart attack and needs immediate surgery. After his surgery, he intimates his term insurer, and they pay out ₹25 lakh from his critical illness coverage.
A few years later, he is diagnosed with a type of cancer that has a very low survival rate. His family intimates the insurer, and after verifying, they pay out his term insurance cover of ₹1 crore, before his passing so that he can plan his finances for the family and have peace of mind for this family.
Claim Process for Terminal and Critical Illness Insurance
The process of filing claims for both types of insurance differs quite significantly.
- Terminal Illness Claims:
- It needs a medical certificate from a doctor (generally from 2 doctors – your treating doctor and the insurer’s doctor) confirming that the policyholder is terminally ill with a short life expectancy, usually less than 6 months.
- Once the insurer verifies the claim, the cover amount is paid to the policyholder or their nominee.
- Critical Illness Claims:
- A medical diagnosis from a specialist is needed to confirm that the insured has been diagnosed with a critical illness that the insurer covers. For instance, if they have cancer, an oncologist must confirm this diagnosis.
- The insurer will pay the claim once they confirm the eligibility under their terms.
Limitations and Exclusions in Terminal and Critical Illness Coverage
Like all insurance policies, terminal and critical illness coverage come with certain exclusions and limitations. Let’s take a look at some of them now:
- Coverage for PEDs: The insurer may not cover pre-existing diseases unless explicitly stated while purchasing the policy.
- Smoking & Alcoholism not covered: Some policies exclude lifestyle-related diseases caused by habits such as smoking, alcohol consumption, or drug abuse.
- Waiting periods: Critical illness policies may have specific waiting periods, meaning coverage does not start immediately after you purchase the policy. There is usually a waiting period before you can make such claims.
- Suicide: Self-inflicted injuries and suicide-related deaths are not covered under terminal illness benefits.
- Survival Period: Coverage for terminal illness & critical illness riders may come with a survival period. This is when the insured must survive beyond a specified number of days after the diagnosis only, after which the insurer will pay the cover amount.
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Conclusion
While both terminal and critical illness coverage provide a lump sum upon diagnosis of certain diseases, they are different types of medical conditions covered under different riders in your term insurance plan.
Before selecting a policy, it is important to understand what each rider covers, review any waiting periods and exclusions, and disclose everything to your insurer. With the right term insurance plan, you can ensure that you and your family are better equipped for any situation.
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