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How Can Life Insurance Protect Families Facing Rare Health Conditions?

Life insurance can protect families managing rare diseases and long-term medical uncertainty with financial stability. Learn how.

Written by : Knowledge Centre Team

2026-02-27

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8 minutes read

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When a doctor mentions a condition that affects only a small percentage of the population, families are often left navigating uncertainty, medically, emotionally, and financially. Treatment may be specialised, medication imported, and care may be lifelong. This poses a risk of abrupt financial instability.

Each year, Rare Disease Day is observed on February 28, drawing global attention to the millions of individuals living with rare diseases and the families who support them. In 2021, the Government of India introduced the National Policy for Rare Diseases (NPRD), establishing a framework to support diagnosis and provide financial assistance for treatment of select rare diseases through designated Centres of Excellence. While medical frameworks are evolving, the financial burden continues to fall heavily on families. This is where life insurance moves from being a financial product to becoming a financial shield.

Key Takeaways

  • Rare diseases and rare conditions can create long-term financial pressure beyond medical bills

  • Health insurance may not cover income loss, caregiving costs, or lifetime care needs

  • Life insurance helps replace income and protect dependents from financial disruption

  • Early planning improves insurability and reduces long-term premium costs

  • Combining health cover, life insurance, and emergency savings builds stronger financial resilienc

What are Rare Health Conditions?

Rare diseases are typically defined by low prevalence in a population. These include genetic disorders, metabolic conditions, certain autoimmune diseases, and other life-threatening or chronically debilitating illnesses requiring specialised treatment. According to the World Health Organization (WHO), rare diseases collectively affect millions globally.

  • Long-Term and High-Cost Nature of Rare Conditions: Rare conditions often require long-duration treatment, repeated hospital visits, and in some cases, lifelong therapy. Some treatments can cost several lakhs annually, especially for enzyme replacement therapies and advanced genetic interventions. Because many therapies are highly specialised or imported, costs can escalate quickly.
  • Limited Treatment Access and Financial Exposure: Unlike common illnesses, rare conditions may require treatment at tertiary centres or specialised hospitals in metropolitan cities. Travel, accommodation, diagnostics, and long-term monitoring add indirect expenses that are not always fully covered by health insurance policies. This increases overall financial exposure for families.

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The Financial Impact on Families

Once diagnosed, the condition does not just affect health; it affects the family’s entire financial ecosystem. Let us examine how.

  • High Treatment and Medication Costs: Rare disease therapies can be among the most expensive in healthcare. Reports highlight cases where annual treatment costs run into crores for certain genetic disorders. Even where government support exists, eligibility criteria and coverage limits may not meet total expenses. Families often dip into savings, sell assets, or rely on fundraising.
  • Loss of Income or Career Disruption: In many households, either the primary earner is affected or a parent needs to leave employment to become a caregiver. Household income stability significantly influences long-term financial security. A sudden drop in earning capacity can therefore create compounding financial stress.
  • Long-Term Care and Lifestyle Adjustments: Rare health conditions frequently require rehabilitation, assistive devices, home modifications, and special education support. These are recurring commitments, and over time, these ongoing costs can reduce retirement savings, children’s education funds, and other financial goals.
  • Psychological Stress Linked to Financial Instability: Financial strain during chronic illness correlates with anxiety and emotional stress. When savings reduce and liabilities increase, families may face difficult trade-offs between treatment and long-term planning.

Why Health Insurance Alone May Not Be Enough?

Health insurance is essential, but it does not always address the entire financial picture. Before moving forward, it is important to understand the gaps.

  • Coverage Limits and Sub-Limits: Even comprehensive health insurance policies may have annual caps, disease-specific limits, or exclusions. Rare disease treatments, experimental therapies, or imported medicines may fall outside standard coverage. Affordability remains a key concern despite insurance expansion.
  • Non-Medical and Indirect Costs: Health insurance typically covers hospitalisation-related expenses. It may not cover income loss, long-term caregiving, transportation, home adjustments, or future financial security for dependents.
  • Waiting Periods and Underwriting Constraints:Pre-existing conditions often come with waiting periods. In some cases, coverage may not extend to all complications. Therefore, relying solely on health insurance can leave families financially exposed.

How Life Insurance Becomes a Financial Safety Net?

When health risks increase, financial certainty becomes more valuable. Life insurance plays a crucial role here.

  • Income Replacement for Dependents: A life insurance payout ensures that dependents continue to have financial support if the earning member passes away. The lump sum can be structured to replace lost income for several years, covering living expenses, education, and long-term commitments. This stability is particularly vital when families are already dealing with medical complexity.
  • Debt Protection and Liability Management: Families managing rare conditions may take loans for treatment. A life insurance cover ensures that in the unfortunate event of the insured’s death, outstanding liabilities such as home loans or personal loans do not transfer as a burden to dependents.
  • Creation of a Long-Term Care Corpus: Life insurance proceeds can be allocated towards a dedicated corpus for ongoing care, therapy, and support. For parents of children with rare conditions, this becomes critical estate planning. It ensures that even in their absence, the child’s medical and living needs remain funded.
  • Estate and Succession Planning: High-net-worth individuals and financially aware households can use structured life insurance planning as part of a succession strategy. Trust structures combined with insurance proceeds can provide disciplined and tax-efficient distribution of funds, ensuring sustained support for dependents.
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Did You Know?

Over 7000 rare diseases have been identified globally, and collectively they affect an estimated 6-8% of the population


Source: Ministry of Health and Family Welfare

Young Term Plan - 1.5 Crore

Types of Life Insurance That Can Help

Not all life insurance policies serve the same purpose. The right structure depends on the family’s financial responsibilities, medical realities, and long-term goals. When a household is managing ongoing rare conditions, selecting the appropriate policy type becomes even more important, as the financial impact may extend across decades.

  1. Term Insurance for High Coverage at Affordable Premiums: Term insurance provides large coverage amounts at relatively lower premiums. For families facing a rare disease, this can be one of the most practical solutions because it prioritises high financial protection at a manageable cost. The payout can replace lost income, fund ongoing treatment, and ensure that essential expenses such as education and housing continue uninterrupted.

  2. Whole Life Insurance for Lifelong Protection: Whole life policies extend coverage for the entire lifetime of the insured. In cases where a rare disease affects the earning member, lifelong coverage can offer added reassurance. Since rare conditions often require sustained financial support, a policy that does not expire after a fixed term may help secure continuity of care well into later years.

  3. Savings-Linked Life Insurance Plans: Some policies combine protection with savings or guaranteed benefits. While not always a substitute for pure term coverage, they may help families systematically build a financial cushion while staying protected. For households adapting to rare conditions, such plans can create a disciplined approach to long-term wealth accumulation alongside risk protection.

  4. Riders That Strengthen Financial Security: Adding riders such as critical illness riders, waiver of premium riders, or disability riders can strengthen overall protection. For instance, if the insured develops complications related to a rare disease and becomes unable to work, a waiver of premium rider ensures that coverage continues without additional financial strain. This layered approach is particularly useful when managing unpredictable medical outcomes.

Can Someone with a Rare Health Condition Get Life Insurance?

Insurance companies assess risk through medical evaluations. Depending on the severity and stability of the condition, insurers may offer coverage with standard premiums, apply premium loading, or impose exclusions.

Buying life insurance before the onset of severe health complications generally improves acceptance chances and reduces premium costs. This is why financial advisors often recommend securing coverage early in life.

Strategic Financial Planning for Families Managing Rare Conditions

It is important for families and caregivers to include financial protection as part of the overall plan to manage long-term care needs and ongoing treatment expenses.

  • Combine Health and Life Insurance: Health insurance addresses treatment costs. Life insurance addresses income continuity and future security. Together, they create layered protection.
  • Build an Emergency Corpus: Government and financial planning advisories commonly recommend maintaining an emergency fund of 6-12 months of expenses. For families managing chronic conditions, a larger buffer may be prudent.
  • Periodic Review of Coverage: Medical needs evolve. Financial goals change. Reviewing coverage annually ensures it is adequate and relevant.

Conclusion

As Rare Disease Day on February 28 reminds us, awareness is essential, but preparation is equally important. Government initiatives, such as the National Policy for Rare Diseases, indicate increasing institutional support. Yet, families remain the primary financial decision-makers. Life insurance cannot cure illness. It cannot eliminate emotional strain. But it can ensure that

 education continues, debts do not overwhelm dependents, and long-term care remains funded.

In the face of medical uncertainty, financial certainty becomes the tool that holds everything together.

Glossary

  1. Rare Disease: A medical condition affecting a small percentage of the population, often requiring specialised care
  2. Underwriting: The insurer’s process of evaluating medical and financial risk before issuing a policy
  3. NPRD: A Government of India framework (2021) providing support for the diagnosis and treatment of select rare diseases
  4. Waiver of Premium Rider: An add-on that keeps the policy active if the insured cannot pay premiums due to disability
  5. Critical Illness Rider: An add-on benefit that pays a lump sum if the insured is diagnosed with specified serious illnesses
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Uncertain About Insurance?

FAQs

Yes, depending on the condition and its severity. Insurers assess applications through medical underwriting. Some applicants may receive standard coverage, while others may face higher premiums or specific exclusions.

If the policy is active and the rare disease was disclosed at the time of purchase, the nominee is generally eligible to receive the sum assured, subject to policy terms and conditions.

Yes. Health insurance covers hospitalisation and treatment expenses, while life insurance provides financial support to dependents in case of the insured’s death, helping replace lost income and protect long-term goals.

Term insurance is often suitable for high coverage at affordable premiums. However, whole life plans or policies with riders may be appropriate depending on long-term financial needs.

Yes. Life insurance can help create a financial corpus to secure the child’s long-term care and living expenses.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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