Mediclaim vs Critical Illness Policies - Whats the Difference?

There are various kinds of health insurance policies available in the market. The basic types are mediclaim policies (also called health insurance policies), critical illness policies, hospitalization cash benefit, unit-linked health insurance plans and senior citizens health plans. A lot of people often get confused between general health plans (also called mediclaim policies) and critical illness policies. This post makes an attempt to clarify the difference between the two health insurance products:

Mediclaim vs Critical Illness Insurance Plans: A Comparison 1. Basic Feature: First, while mediclaim or health insurance policy is an indemnity policy i.e., it reimburses your actual medical expenses, critical illness policy is a defined benefit plan i.e., it gives you a lump sum on diagnosis of any of the prespecified critical illnesses irrespective of your medical expenses. Put another way, for the purpose of critical illness policy, it is totally irrelevant whether youre hospitalized or not and whether you incur any expenses on your medical treatment or not. The only requirement is diagnosis and not hospitalization.

2. Scope / Coverage: The second major difference between a health insurance policy and a critical illness policy is that while scope of health insurance or mediclaim policy is quite wide, critical illness policies are restricted in coverage. Mediclaim policies usually cover the entire gamut of ailments except pre-existing diseases and certain other treatments such as maternity and pregnancy, dental treatment etc., the critical illness policies, on the other hand, cover only certain

specified diseases like cancer, stroke, renal (kidney) failure, heart attack, major organ transplant, multiple sclerosis and paralysis. The exact critical ailments covered differ from insurer to insurer but are usually in the range of 6 to 12 diseases.

3. Purpose: Another key distinction between the mediclaim and critical illness policy is the purpose of buying the policy. While you need mediclaim policies to defray the hospitalization expenses incurred by you on your medical treatment, the purpose of buying critical illness policy is not only to foot the medical bills but also to compensate the financial loss or hardships that arise from your serious or critical illness.

4. Sum Assured: Whereas the maximum sum assured for mediclaim is usually capped at Rs 5 lakh (although few companies allow cover up to Rs 10 lakh) by most insurers, the critical illness policies provide you with much higher coverage ranging from Rs 5 lakh to Rs 50 lakh.

5. Waiting Period: Both the mediclaim and critical illness plans exclude preexisting ailments. However, unlike most general health plans or mediclaim policies which carry a waiting period usually of one month (i.e., any sickness or illness contracted during first 30 days from the commencement of the policy is excluded), in case of critical illness plans most insurance companies exclude any critical ailments detected during first 90 days. Besides, in case of mediclaim policies, there are certain ailments such as hernia, piles, sinusitis, diabetes, cataract which gets covered only after a waiting period of 2 years.

6. Other Exclusions: A few of the insurers also require a survival period of 30 days after the diagnosis of the critical illness i.e., you need to survive for 30 successive days after the diagnosis of the critical illness in order to make the claim. In other

words, if you die within 30 days of the diagnosis, your claim under critical illness policy is rejected.

In case of general health insurance policies, for making a claim generally minimum stay of 24 hrs is required except in a few specified cases.

7. Policy Status after making the Claim: While critical illness policy expires, once the claim is made, mediclaim continues even after you file one or more claims; it remains in force till the total amount insured is exhausted.

Please note all the features mentioned above are general and may vary from company to company and policy to policy. Finally, which health insurance policy general health (mediclaim) or critical illness policy is better? Should you go for mediclaim or buy a critical illness policy? Actually, both policies supplement each other as they serve different purpose and therefore you require both. Imagine youre diagnosed with a cancer. Now, while your mediclaim policy would be able to take care of your medical bills, what about loss of income if you remain on leave for long and what about post operative expenses? What if you become permanently disabled and bedridden due to paralysis? I hope you got the point.

Looking Beyond 80C: Section 80 Other Tax Deductions Everybody knows that section 80C along with section 80CCC and section 80CCD of Income Tax Act, 1961, allows a tax deduction of Rs 1 lakh from the gross total income. Ive already given a brief overview of various tax saving options and investment avenues eligible for deductions under section 80C and also discussed the variouslimitations of section 80C. But, did you know that apart from section 80C, there are many more tax deductions available under section (u/s) 80? You can avail deduction under section 80D for health insurance, section 80DD & section 80DDB for medical treatment, section 80E for educational loan, 80G for donations and 80GG for rent paid. Heres a list of 7 such deductions available to individuals under section 80:

Medical Based Deductions under Section 80 1. Health insurance premium under section 80D You can claim a deduction of Rs 15,000 (RS 20,000 in case of senior citizens) under section (u/s) 80D for medical or health insurance--popularly known as mediclaim policy--premia paid on the health of yourself, spouse and dependent children. Additionally, (from 1st April, 2008) youre also allowed a further deduction of Rs 15,000 u/s 80D for buying health insurance policy for your parents (Rs 20,000 if either of your parents is a senior citizen) irrespective of whether theyre dependent on you or not. Thus, if neither you nor your parents are senior citizens, youre allowed a maximum deduction of Rs 30,000. On the other hand, if both you and your parents are senior citizens, then the maximum limit allowed under section 80D increases to Rs 40,000. Please also note that part payment of premium is also eligible for deduction u/s

80D. For example, suppose that your parents buy a health insurance policy having an annual premium of Rs 14,000. Out of the total premium, lets say your parents pay only Rs 5,000 and the balance of Rs 9,000 is paid by you. So, youll be allowed a tax deduction of Rs 9,000 under section 80D and your parents will be allowed a deduction of Rs 5,000.

2. Medical treatment of disabled dependent under section 80DD Youre also allowed a fixed deduction of Rs 50,000 (irrespective of the actual expenses) u/s 80DD, if you happen to incur any expenditure on the medical treatment (including nursing, training & rehabilitation) of handicapped dependent (spouse, children, parents, brothers and sisters). For severe disability, the amount of deduction available is Rs 75,000. Furthermore, section 80DD also allows deduction on insurance premium paid on certain specified life insurance policies. JEEVAN ADHAR policy of Life Insurance Corporation (LIC) qualifies for deduction under section 80DD. The policy is meant for the maintenance of handicapped dependent after the death of the insured. This is a whole life policy with no maturity value. On the death of the insured (individual depositing the money), 20% is paid in lump sum and balance is utilized to pay annuity to the handicapped dependant or the nominee for the benefit of the handicapped dependent. If the handicapped dependent dies before the insured, the amount is refunded back and is taxable in the year of receipt. There is yet another policy of LIC (JEEVAN VISHWAS) meant for the purpose of providing for the handicapped dependents; however, it is not eligible for deduction section 80DD of the IT Act. It is a with-profit endowment plan with guaranteed and loyalty additions. The point worth remembering is that section 80DD allows fixed deduction of Rs 50,000 / Rs 75,000 irrespective of the expenditure incurred on the medical treatment of the handicapped dependent or amount deposited in the Jeevan Adhar Policy. It might seem absurd, but its true. To know the specific ailments covered and other formalities to be completed for availing deduction u/s 80DD, please read this article by Raagvamdatt.

UPDATE: As per the changes made by Budget 2009 in section 80DD, from current financial year (FY 2009-10), while the limit of Rs 50,000 for ordinary disability remains same, the fIxed limit of Rs 75,000 for severe disability stands increased to Rs 1,00,000. 3. Medical treatment of certain specified ailments under section 80DDB Youre also allowed a deduction of actual expenditure incurredminus any amount reimbursed by employer or by an insurance companyup to Rs 40,000 (Rs 60,000 for senior citizens) for medical treatment of certain specified diseases and ailments (e.g. AIDS, cancer, Parkinsons disease etc.) of yourself or any dependent family member (spouse, children, parents, bothers and sisters) under section 80DDB subject to certain conditions. 4. Handicapped person under section 80U Youre allowed a fixed deduction of Rs 50,000, if youre suffering from any of the disabilities specified such as blindness, hearing impairment, mental retardation or illness, leprosy-cured, low vision and locomotive disability, autism and celebral palsy. For severe disability, deduction is Rs 75,000. Please note the following points for claiming deduction u/s 80U: 1. The disability pertains to you (i.e., the taxpayer) and not any of your family members. 2. You need not spend any amount on the medical treatment. 3. A certificate is required from specified medical authority. 4. For up to 40% disability, nothing is allowed; for disability ranging from 40% to less than 80% a deduction of Rs 50,000 is allowed and if the disability is 80% or more, Rs 75,000 is allowed to be deducted from your gross total income. Finally, see this post by taxworry to know the medical certificates / forms required to claim deduction u/s 80DD, 80DDB and 80U.

Health Mediclaim Insurance: 5 Important Reasons to Continue Your Existing Policy

It is always better to renew the health / mediclaim policy well in time (at least 15 days before the due date) so that you dont lose the added benefits which come from continuity of the policy. Dont ever think that the company or your agent is going to send you a reminder. Insurer may send you renewal notice as a matter of courtesy, but its not obligatory for them. Therefore, make sure that you remember the renewal date of your health mediclaim insurance policy like you remember your anniversaries. Following is the list of benefits which you get entitled for over a period of time due to continuous renewal of your health mediclaim policy from the same insurer and stand to lose out due to non-renewal of your policy in time or due to change of insurer:

Health Mediclaim Insurance - Benefits of Continued Coverage / Timely Renewal 1. No Claim Bonus (NCB) / Discount Unlike other general insurance policies, a health mediclaim policy doesnt give you any discount in renewal premiums for claim free years. Instead health mediclaim policies such as Bajaj Allianz Family Floater Health Guard Policy and National Mediclaim Insurance Policy-Individual allow you an increase in sum assured by 5% for every claim free years subject to a maximum cumulative bonus of 50% of the basic sum insured (i.e., 10 claim free years of insurance). However, there are exceptions also; for example, Star Family Health Optima

Policy allows No Claim Discount @ 10 per cent (non-cumulative) for every claim free years. Similarly, ICICI Lombard HealthCare Insurance (a family floater health plan) gives No Claim Discount of 5% on premium for every claim free year (subject to a maximum of 25%) instead of no-claim bonus. Reliance HealthWise Policy provides for a renewal discount of 5% of renewal premium (if no claims made in the previous year) subject to a maximum accumulation of 50%.

2. Coverage for pre-existing diseases and temporary exclusions As already mentioned in the earlier post Health Mediclaim Coverage & Exclusions, in most of the health mediclaim policies, pre-existing diseases gets covered usually after 4-5 years and there are certain diseases (even if they are not pre-existing) which are covered from 2nd or 3rd year onwards. Now, if theres a gap in renewal of your health mediclaim policy or if you shift to another insurer, the exclusion period again starts from scratch, nullifying all your timely renewals during the previous years. For example, suppose you make timely renewals of your health mediclaim policy during first 3 years and in fourth year there is a slight delay of a few days, this would make the effective exclusion period 7-8 years for pre-existing diseases and 4-5 years for temporary exclusions.

3. Waiting Period As you know that most health mediclaim policies dont allow for any claims during the first 30 days; in case of non-renewal of policy in time or change of insurer this waiting period of 30 days also starts afresh.

4. Free Health Check-ups Most health mediclaim policies provide that after 4 claim free years (without any break) you get entitled for reimbursement for the cost of medical check-up limited to 1% of the sum insured. For example, FGI Health Suraksha Family Floater allows free medical check-up of any two members subject to 1% of the sum insured up to a maximum of Rs 4,000 for a family policy. Similarly, while Apollo DKV Easy Health Family Floater Standard Plan reimburses 1% of the sum insured

every fourth year, Premium Plan reimburses 1% of the sum insured subject to a maximum of Rs 5,000 per person every 2nd year.

5. Ailment suffered during the previous coverage Even the ailments suffered (irrespective of whether you made a claim or not) during the previous coverage period would also become pre-existing diseases due to not renewing your health mediclaim insurance policy in time as the policy purchased after the due date would be construed as new policy.

Timely renewal of health covers is very important because a single day gap can prove to be a costly affair. Unlike life insurance policies, health mediclaim policies usually dont allow any grace period for payment of renewal premium. However, there is good news. IRDA has issued new regulations recently which are applicable to all health insurance policies issued or renewed (by general insurance companies) on or after 1st June 2009. According to the IRDA circular dated 31st March, 2009, a uniform grace period of 15 days has been made compulsory. In other words, now your health policy wont lapse just because you delayed a payment by a few days provided you pay it with in 15 days from the due date. But, please remember that unlike life insurance where you remain covered during the grace period, health insurance claims made during this gap period wont be allowed. Anyhow, the continuity of your existing health policy wont suffer unlike in the past where due to delay of even just one day, your health policy was treated as fresh policy. In a nutshell, to avoid losing continuity of cover it is very important to renew your health / mediclaim policy in time. If there is a break in the policy, you stand to lose out many benefits which you acquire over a period of time.

Claim settlement process

There is a myth that taking claim from insurance companies is to difficult. Yes, it is, if you are not aware of methodology and at times, many people file claim for something which they are not covered for or not informing insurer at the time of hospitalization(in case of cashless claims). The system is such that most of the insurance company has a TPA (Third Party Administrator), TPA is an outsourcing agency of Insurance companies that services claims. Once the policy is taken, insurance company issues card to the Policy holder with name of TPA on it. Policy holder have freedom to select it from list of TPAs with insurance company. In case, one meets with casualty, he/she has to produce the same card in hospital. Earlier, there was a system of reimbursement of expense where in you first spend the money from your pocket and then apply for claim. Now, TPA offers CASHLESS arrangements with many hospitals. if you get admitted such hospitals, the TPA would directly make payment for which you are entitled and hence there is no problem of you arranging Cash immediately.