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Difference Between Terminal illness vs Critical illness Insurance

Team AckoJul 9, 2021

Health Insurance has become a necessity for every individual. Especially with the ongoing pandemic, medical insurance with comprehensive cover is crucial. You might have come across several additional rider plans for the insurance policy. Critical Illness and Terminal Illness cover are the two important rider plans of a medical coverage policy. Read on as this article covers the key differences between Terminal Illness vs Critical Illness Insurance.

Difference Between Terminal illness vs Critical illness Insurance

Difference Between Critical Illness and Terminal Illness Insurance

Before diving deep into the key differences between both the insurance covers, you need to know what does Critical and Terminal illnesses mean. Without the proper understanding of the type of illnesses, choosing a medical insurance cover becomes a tricky task.

Critical Illness

Critical Illnesses are very serious diseases and illnesses, but they can be cured by getting extensive medical treatment. Cancer, heart attack, organ transplant, stroke, kidney failure, etc., are some of the most common critical illnesses.

Terminal Illness

In layman's language, terminal illnesses are diseases and illnesses that are not curable. Unfortunately, with the current lifestyle, these types of illnesses are increasing day by day, especially in cities. In other words, a terminal illness is a life-threatening disease, and the chances of a patient's survival are minimal. 

Refer to the table below for the key differences between Critical Illness and Terminal Illness Insurance:

Details Critical Illness Insurance Terminal Illness Insurance
Coverage Covers critical illnesses such as cancer, heart attack, stroke, organ transplant, kidney failure, etc. Covers terminal illnesses such as brain tumors, paralysis, organ failure, Alzheimer's disease, severe burns, etc.
Claim Availability Can raise a claim if diagnosed with a critical illness, irrespective of the life expectancy. The insured can claim the benefit without being hospitalized. Can raise a claim if diagnosed with a terminal illness. The insured can claim the benefit if the life expectancy is less than 12 months.
Sum Assured The policyholder receives a one-time lump sum amount equal to the sum assured. In some cases, the insured receives up to 25% of the sum assured for medical treatment. The remaining amount is paid as a one-time lump sum benefit to the nominee after the demise of the insured.
Benefit You will have a financial backup when you need it the most. You can utilise the claim amount as per your needs. Family members will have a financial backup after the death of the policyholder. In some cases, the insured will also receive up to 25% of the sum assured for medical treatment if the life expectancy is below 12 months.
Tax Benefit The received lump sum amount is tax-free. The claim benefit amount is tax-free.

Critical Illness vs Terminal Illness Insurance:

Critical and Terminal Health Insurance can be confusing as both the plans cover serious illnesses and diseases. But both medical covers have different sets of coverage benefits. Below are the details of both the insurance plans:

  • Critical Illness Insurance: A Critical Illness Insurance Plan works differently than the standard health insurance plan. A Critical Illness Policy offers a one-time benefit to the insured. If the policyholder is diagnosed with a life-threatening critical illness during the policy period, then the insurer pays the sum assured as a one-time lump sum amount. The policyholder can use the amount for medical treatment and other financial requirements.

Example Scenario: 

  • Mr Y has a Critical Illness cover with a sum assured of Rs. 5 lakhs.

  • Mr Y is diagnosed with kidney failure.

  • The treatment for kidney failure is very expensive as the patient has to undergo dialysis or a kidney transplant.

  • Mr Y files a claim against the Critical Illness cover.

  • The insurer settles the claim by paying the sum assured amount as a one-time benefit irrespective of Mr Y’s life expectancy.

  • Terminal Illness Insurance: Terminal Illness Insurance also provides a one-time benefit, but there is a slight difference. In a Terminal Illness Insurance Policy, the nominee receives the sum assured amount after the demise of the insured.

In some cases, the insurer pays up to 25% of the sum assured to the insured for the medical treatment if the life expectancy of the policyholder is less than 12 months. However, the final lump sum benefit will be reduced to an equal amount, which is already paid for the insured’s medical treatment.

Example Scenario:

  • Mr Y has a Terminal Illness cover of Rs. 5 lakhs.

  • Mr Y is diagnosed with a brain tumour, and his life expectancy is less than 12 months.

  • The insured has to undergo medical treatment.

  • The policyholder claims against the Terminal Illness cover.

  • In some cases, the insurer pays up to 25% of the sum assured to the policyholder for medical treatment.

  • The remaining sum assured will be paid to the nominee after the demise of the insured.

Who Should Buy Critical Illness Cover?

Individuals with a family history of critical illness should opt for Critical Illness Insurance. In the current time, illnesses and diseases such as heart attack, kidney failure, organ transplant, stroke, etc., are increasing. So, buying a Critical Illness medical cover is a wise decision.

Critical illnesses are unpredictable, and if you’re diagnosed with any such diseases, your financial stability will take a hit due to the high cost of medical treatment. So, every individual should consider buying the Critical Illness cover along with the standard health insurance plan. It not only secures your financial needs when you need them the most but also gives you peace of mind. 

Who Should Buy Terminal Illness Cover?

If you are concerned about the finances after your demise and want to secure the finances of your family, then you should opt for the Terminal Illness cover. Terminal illnesses such as brain tumours, paralysis, organ failure, etc., are mostly incurable, and the chances of survival of the patient reduce during such conditions. So, it’s better to secure the financial stability of your family with the help of Terminal Illness medical cover.

Conclusion:

Now, you are aware of the differences between Terminal and Critical Insurance. Both the plans offer long-term benefits at different stages of life. So, you should pick the right plan, depending on your financial needs. With the current pandemic situation, the cost of medical treatment is on the rise. Having a financial backup during such medical complications can be a life-saver, and it also secures your finances. So, make sure that you opt for any of these covers while purchasing a health insurance plan.

Frequently Asked Questions:  

Below are some of the most commonly asked questions about Critical and Terminal Insurance:

FAQS

What is considered a critical illness?

Long-term and serious conditions and diseases such as cancer, heart attack, stroke, kidney failure, loss of arms/legs, organ transplant, disability, blindness, etc., are considered critical illnesses.

Is diabetes a terminal illness?

No. Diabetes is not a terminal illness. Diseases or conditions which are not curable are considered terminal illnesses or diseases. With proper medical treatment and care, an individual with diabetes can lead a normal life.

Does Terminal Illness Insurance cover medical treatment?

Yes. In some cases, the Terminal Illness cover provides financial benefit for medical treatment, provided the life expectancy of the policyholder is less than 12 months. In such cases, the insurer will pay up to 25% of the sum insured for the insured’s medical treatment.

Do I need to be hospitalized to get the benefits of the Critical Illness Insurance?

No. You need not be hospitalized to avail of benefits of Critical Illness cover. If you are diagnosed with critical illness, you can file a claim with the required documents. The insurer will settle the claim by paying you a one-time lump sum amount equal to the sum assured. You can utilise the claim amount as per your financial needs.

Is the critical illness benefit taxable?

No. The one-time lump sum benefit under the Critical Illness cover is non-taxable as per Section 80D of the Income Tax Act. The policy is to provide you with financial backup during adverse situations, so the benefits are tax-free.

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