Is a health insurance policy enough to provide for medical emergencies?

Ratnesh Verma is in his early forties, with two school-going children and a homemaker wife. Recently, the family was devastated when he was diagnosed with a serious heart ailment that has temporarily affected his ability to earn enough to support his family. He had bought a health plan to take care of his and his family's medical expenses. However, his insurance provider has told him that the health policy will cover only hospitalisation expenses. What should he have done?

While a health insurance policy can help meet unforeseen medical expenses, a critical illness cover may provide the additional buffer for one's finances in case of a major illnesses. Health insurance policies seek to cover the actual expenses incurred if you are hospitalised due to various ailments or an accident. On the other hand, critical illness policies provide a lump sum once the insured individual is diagnosed with a pre-specified critical illness that is covered by the policy.

A critical illness policy covers six to 12 diseases diagnosed after buying the policy, though the list may differ from insurer to insurer. Besides hospitalisation and medical bills, it also takes care of other incidental expenses, such as postoperative care, travel and boarding. It can also supplement income while one is recuperating, which is particularly useful in Verma's case.

There are many individuals like Verma who fail to understand that mediclaim or health insurance policies, and critical illness plans are two entirely different products that are designed to serve different purposes. Both policies are different in nature and, hence, one cannot be a substitute for the other. However, when taken in conjunction, they can boost one's health insurance cover.

Verma would also have been better off if he had created an emergency fund to take care of contingencies that are not covered by insurance. This would have helped the family tide over any temporary loss of income arising from this unexpected emergency.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta).