Does Critical Illness Cover Mental Health Issues?

Mental health is no longer a theoretical issue; it's a mainstream part of public health. Post-COVID, India has witnessed an unprecedented surge in psychiatric consultations. Anxiety, depression, and burnout now affect people across all income groups.

Let us look at some facts first:

• The lifetime prevalence rates for mental illness show figures of 13.7% in India.

• Common mental disorders affect 60–70 million Indians, and doctors observe more severe mental illnesses in 6–7 crore people.

• The fact that India is the suicide capital of the world is utterly alarming. It is slightly more common in urban areas than in rural areas (13.5% and 6.9%, respectively).

• Mental illness is a major cause of disability-adjusted life years (DALYs). Thus, the need for systematic coverage of mental health cannot be denied.
  

That increased awareness leads us to a question: Does mental illness get covered under the policy for critical illness?

According to the IRDAI Mental Health Mandate 2018, health insurers in India are now mandated to cover mental illnesses. However, critical illness insurance is a separate product with distinct terms and scope.

This guide breaks down what critical illness insurance means for mental health if it covers conditions like depression and anxiety, and how to get that coverage.

Understanding Critical Illness Insurance 

Critical illness insurance pays money at the time of diagnosis of a life-threatening critical disease. In contrast to traditional medical insurance, which covers and pays for hospitalization expenses, critical illness insurance pays a lump sum at the time of diagnosis.

Policyholders aren’t required to spend the payout on treatment costs. You can also use it to cover non-medical expenses, such as loss of income, home care, or lifestyle modifications.

The plan generally covers:

• Cancer (severe forms).

• Heart attack (of a specified severity).

• Stroke.

• Kidney failure.

• Organ transplant.

• Neurological disorders such as Parkinson's or Alzheimer's.
  

Insurers select these illnesses because they involve substantial disruption to one's life and are costly. Insurers specify each illness along with severity levels, diagnostic confirmation requirements, and survival rates.

Is Mental Illness Included in Critical Illness Insurance?

So, does critical illness insurance cover mental health conditions?

In most cases, no.

The majority of Indian critical illness insurance policies do not cover mental illnesses. Whereas physical diseases such as cancer or stroke are likely to be insured against, most CI plans exclude mental diseases, like:

• Depression.

• Bipolar disorder.

• Schizophrenia.

• Generalized Anxiety Disorder (GAD).

• PTSD and related disorders.
  

Several factors explain these critical illness insurance exclusions:

• Vagueness: Psychiatric diseases don't have sufficient objective diagnostic criteria.

• Chronic/Episodic Nature: Mental illness is not usually sudden or irreversible. Thus, these plans don’t support mental disorder insurance claims.

• Perceived Subjectivity: Insurers do not wish to pay lump sums based on subjective psychiatric assessment.
  

Even in situations where a condition such as schizophrenia hits income or demands prolonged treatment, it may easily fail to meet the standards of the policy.

Insurance coverages place mental illness with self-inflicted injury or alcoholism. This also discourages mental health coverage under CI plans.

Expert Insight: Despite the rising need, mental illness remains outside the definition of critical illness in most Indian policies. But is there a shift on the horizon? 

Changes in the IRDAI Mental Health Mandate

In 2018, the Insurance Regulatory and Development Authority of India required insurers to provide coverage for mental illness under standard health policies.

The Mental Health Care Act of 2017 introduced this mandate. It was welcomed as a step in the right direction towards bringing health equity.

What did the IRDAI directive change?

1. Insurance for psychiatric disorders, or depression and anxiety coverage in insurance, is now possible under normal health policies.

2. Certain insurers also took the initiative of offering inpatient counseling sessions, psychiatric medication, and electroconvulsive therapy to curb mental illness conditions.

3. Critical illness insurance contracts, however, were exempted from this obligation. Because these contracts are based on listed diseases, insurers don’t have to protect against psychiatric illness unless specifically defined.

4. Even though standard health plans cover mental illness as a pre-existing condition in insurance, critical illness coverage for mental illness is still ignored, despite the Mental Healthcare Act insurance coverage.
   

Did You Know? Ayushman Bharat is the flagship scheme launched by the Government of India that offers up to 5 lakhs insurance cover for mental illness. It has 17 packages for mental health disorders. It includes psychoactive substance use, ECT, rTMS, and most of the blood tests.

Neurological vs Psychiatric Disorders - Understanding Mental Health Coverage in India

A point worth noting is that critical insurance includes neurological disorders but not psychiatric disorders. What is the difference?

A few critical insurance policies offer coverage against neurological disorders, such as:

• Alzheimer's disease.

• Parkinson's disease.

• Brain tumors.

• Multiple sclerosis.

• Motor neuron disease.
  

These diseases have an impact on personality, memory, or intellect and cannot be defined as mental illness. Insurers categorize these as organic brain diseases, which meet the physical and irreparable harm criteria for CI claims.

In contrast, psychiatric illness, such as anxiety, depression, or schizophrenia, is a chemical or functional state of imbalance rather than impairment in structure. Even where the symptoms are the same, e.g., memory loss for Alzheimer's and major depression, the diagnosis won’t meet eligibility criteria under most CI policies.

It is important because:

• Neurological illness is a presumptively listed illness.

• Insurers automatically exclude psychiatric illnesses, although they result in the same impairment.

Therefore, insurers won’t automatically cover symptoms unless the patient is diagnosed with a listed sickness.

Pro Tip: Carefully read the policy wording on listed conditions and definitions. Don't assume a policy ensures mental health because symptoms appear to be similar to listed critical illnesses.

Contact the professionals at AssetPlus to understand critical illness insurance exclusions and insurance for psychiatric disorders.

Are There Any Critical Illness Policies That Cover Mental Health?

India's standalone retail critical illness policies don't cover mental health. Why?

• There are non-standardized diagnostic intervals for psychiatric conditions.

• Recovery is variable, making it difficult to assess the problem.

• Abuse and fraud risk prevail.

• Symptom reporting is subjective.
  

However, there are a few critical illness insurance trends where it’s possible to make mental disorder insurance claims:

• Group CI Customization: Many corporations are now adding psychiatric illness riders to group CI policies. These plans offer limited coverage and eligibility.

• Riders: UK and Australian insurers are introducing mental health riders that offer partial lump sums for particular psychiatric illnesses. Indian insurers are following suit.

• Digital-First Health Plans: Certain tech-insured companies have begun introducing riders for mental well-being as an add-on to overall health insurance. These plans cover counselling sessions, OPD consultations, or psychiatric hospitalisation, but they don’t provide CI-style lump-sum payouts.
  

Bottom Line: If you’re hoping for full mental health inclusion under CI plans, the ecosystem is still evolving. For now, you can depend on traditional insurance that includes most psychiatric disorders.

How to Financially Prepare for Mental Health Challenges

Adopt a layered insurance strategy if you want to cover mental illness in health insurance policies:

Maximize Your Base Health Insurance

• Ensure your policy includes inpatient psychiatric treatment, as mandated by IRDAI.

• Ensure insurance for psychiatric disorders like schizophrenia, bipolar disorders, or anxiety.

• Verify the waiting period or sub-limit for mental illness claims.
  

Purchase OPD or Wellness Riders

• Choose riders that cover psychological access, online therapy websites, or emotional well-being sessions.
  

Have an Emergency Mental Health Fund

• Long-term medication, rehabilitation, or treatment might not be entirely covered.

• Save or invest with systematized investment products to create a mental health care fund.
  

Use CI Cover along with Health and Life Insurance

• Utilize CI insurance for physical health risks like cancer or stroke.

• For mental health risks, bank on your basic health cover, OPD cover, and savings cushion.
  

Leverage Employer Assistance Programs

• Companies across India now offer mental well-being services at no cost or at a low cost. Utilize them before spending insurance funds.
  

AssetPlus Insight: Utilize FundFinder or consult a certified financial planner on AssetPlus to determine insurance appropriateness in connection with your medical past and professional needs.

To Wrap Up

If you're still wondering whether critical illness plans cover mental health, the answer is — not yet. CI policies in India still exclude psychiatric illness, even when regulation and social consciousness are on the rise. Your best option so far is an integrated product that includes basic health insurance, mental well-being riders, and proactive money planning.

At AssetPlus, we help you navigate this evolving landscape by offering expert guidance, customized insurance solutions, and smart investment strategies—so you’re covered both physically and mentally. Sign up now!

FAQs

Can we treat mental illness as a pre-existing condition in insurance?

The vast majority of Indian policies don’t cover mental illness as an insured critical condition. Depression, bipolar disorder, or anxiety are usually excluded.

What is the current situation of coverage of mental illness in health insurance policies?

At the direction of IRDAI, many health insurers now have coverage for hospitalization for mental conditions like schizophrenia or major depression.

Is outpatient therapy covered under health insurance?

Some policies cover OPD as psychiatric consultations or therapy. Insurers usually offer it as an add-on rider or part of premium digital-first policies.

Are neurological disorders mental health conditions?

No. Neurological disorders, such as Alzheimer's or Parkinson's, are physical brain diseases and fall under CI plans. Insurers don’t classify these as psychiatric disorders.

How do I ensure financial security if I have a history of mental illness?

Combine normal health cover, OPD covers, and savings cushions, and take guidance from platforms such as AssetPlus for end-to-end coverage.