Critical ailments not only affect the person physically; it also has a major impact on the finances of the family. A critical insurance pays a lump sum amount which can be used to cover medical and household expenses and so it acts as an income replacement. It also has tax benefits like Critical illness pay-out is tax-free under Section 80D of the Income Tax Act. Other than that, the policy gives peace of mind as now one can concentrate more on medical treatment rather than running around to arrange funds for medical and household expenses. Under a critical illness insurance plan, a fixed sum is paid on the diagnosis of a critical ailment, irrespective of whether the treatment takes place in India or abroad. It means the policy can help you if you want to go abroad for further medical treatment. On the other hand, Regular Individual Health Insurance Policy covers diseases or injury as long as it is mentioned in the policy document. The policy covers only those medical expenses which are incurred in India. The payout is indemnity based for medical expenses incurred. The policy continues to offer coverage even after claim is paid, till the renewal. Critical Illness Policy covers critical illnesses only, mentioned in the policy. A lump sum benefit is paid on diagnosis of a critical ailment, irrespective of the medical expenses incurred. The policy ceases to exist once the benefit is paid out.
The policy acts on a simple principle - if you are diagnosed with any of the covered critical illness, the insurer will pay the sum insured as a lump sum amount. Apart from paying hospitalization expenses, the amount can be used to pay loan EMI, household expenses, children school fees, etc.