Health insurance– Part 1

Thu 7 Jul 2016 18:55:00 UTC

health insurance part-1-1

Health is wealth as the saying goes, but when it comes to health insurance, not many people want to even talk about it. A recent survey by ICICI Lombard/ET confirmed as much, with a little more than a quarter of the respondents saying they did not need any health insurance. Health insurance penetration in India is less than 5%. This penetration is much lower than other similar countries, like brazil, china, etc. Only about 10% of the medical treatments are currently covered by insurance in india.

Misconceptions about health insurance and lack of awareness play a major role. Many consider health insurance scary, especially when the issue of serious illness or disability comes up in discussions. It certainly is not an enjoyable subject to talk about, but an essential one nevertheless. Once you have a health cover though, you can breathe easy and feel relieved.

Almost 40% of the respondents to a recent ICICI Lombard/ET survey said the cost of health insurance is prohibitive. While the escalating cost of health insurance may be a genuine cause for concern, it has to be recognized the potential cost of not having any insurance coverage is significantly higher.

Here in this post we give you the low-down on health insurance options and benefits. So read on and make a wise and informed choice.

The below are the various types of plans and their main benefits.

Indemnity-Based Health Cover

These are basic plans that reimburse expenses incurred on hospitalization. Cashless facility is also available at network hospitals to facilitate direct settlement of bills by insurance company.

In addition to hospitalisation, many insurers offer day-care treatment cover these days, while some offer OPD benefits such as:

  • Specialist consultation
  • Diagnostic test expenses
  • Dental treatment
  • Vaccinations
  • Hearing aid
  • Eye check-up, spectacles, and contact lenses

These plans are offered by general insurance companies and the premium payable rises with age and depends on factors such as:

  • Deductible
  • Sub-limits
  • Co-pay

Therefore, as with all insurance policies(and any legal documents) one must read the policy fine print to understand the terms and benefits.

Additionally, with some plans you are entitled to a benefit Bonus of 50% of the basic Sum Insured for every claim free year. In other words, you can double your coverage after two claim free years, which will stand you in good stead in the future; especially if you take health insurance when you are young.

These plans cover an individual or an entire family and are renewable annually or every 2 years. All of the above information is applicable to both the below sub-categories.

The health insurance premium paid is exempt from tax under Sec 80D of the Income Tax Act to the extent of ₹25,000, while for senior citizens the limit is ₹30,000.

Individual Health Insurance

In this plan, as the name implies, the entire sum insured covers only one individual against various disease and illnesses

Family Floater plan

A Family Floater is a Health Insurance policy that covers an entire family or just the spouses. One person in the family can use a substantial part of the cover or sum assured under the plan.

This provides flexibility and costs less for a couple/family of four than 2/4 individual plans. At an additional cost, the plan allows you to restore the cover once you have made a claim. Some plans do not allow the family to claim for the same illness, while some others do not allow the same person in the family to claim again.

The premiums for these policies are determined based on the age of the oldest member of the family being insured and therefore it’s not a good idea to include aged parents in the same policy as the rest of the family. We will cover health insurance policies for parents and senior citizens in a separate post in the near future.

Top-up Plans

A Top-Up plan is designed to supplement your primary Health Insurance cover at an affordable premium. Top-Up plans are indemnity plans covering hospitalization and OPD treatment, but the benefits kick in only after the policy holder has exhausted a sizable deductible limit, beyond which the Top-Up can be utilized for paying the expenses.

This makes the Top-Up plans relatively inexpensive as the smaller claims are not payable by the insurer. Top-Up plans don’t need a medical check-up until the age of 55 years, while most regular health plans typically need one beyond 45 years. Top up plans can be wisely used in conjunction with a basic medical insurance plan or an employer provided medical insurance plan.

For example, If an individual has a basic medical insurance cover of ₹ 2.5 lakh either of his own or from his employer and he buys a Top-Up plan for ₹ 5 lakh with a ₹ 2.5 lakh deductible, his total coverage would be ₹ 7.5 lakh. In the event the insured is hospitalized for whatever reason, claims up to ₹ 2.5 lakh is paid from his basic policy or by the employer provided policy, while the outstanding amount exceeding ₹ 2.5 lakh, if any, will be reimbursed by the Top-Up plan.

Top-up plans are available in both individual and family floater options.

Fixed Benefit Health Insurance Plans

Under these plans, the policyholder is entitled to a lump sum payout in the event of serious illnesses, surgeries or hospitalization, as per the terms and conditions of the plan. Such plans are available either as standalone policies or as riders/add-ons. Examples are Critical Illness and Personal Accident insurance.

We have already covered both critical illness insurance part-1 and part-2) and personal accident insurance (part-1 and part-2) extensively in previous posts.

Unit Linked Health Plans (ULHP)

These plans, better known as ULHPs, are a combination of indemnity based health cover aka mediclaim and a unit linked insurance plan. Part of the premium you pay to the plan goes into investment on which you receive returns, while the rest is used towards health insurance.

These are plans offered by insurers to entice those who are reluctant to invest in health insurance, as there are no returns on investment. An individual usually has a choice of funds to invest in based on one’s risk appetite. At the end of the tenure, the insurer will pay a maturity benefit.

However, as we have mentioned before about life insurance, it is never advisable to combine investments and insurance, and you are usually better off with a mediclaim policy as a base policy.

Health saver plans

Health saver plans are quite similar to unit linked health plans. The plan allows you to withdraw part of the accumulated earnings in the fund to pay for medical expenses that are not covered under your basic medical insurance cover.

Benefits, Add-Ons and Riders

Every Health plan has add-on benefits, that give you improvements in some aspect of the cover offered for a marginal increase in the premium price. It is important to understand all the add-ons ofered so as to make a fully informed decision on which are germane to your current situation and which aren’t.

Cashless Hospitalization Benefit

Many insurers offer cashless hospitalization at networked hospitals. According to a recent ICICI Lombard/ET survey, most respondents prefer this feature and therefore you have to choose an insurer that includes the top hospitals in your neighbourhood to avail this benefit.

Hospital Cash Benefit

This feature offers the insured a lump sum of money every day in the event of hospitalization as hospital cash benefit regardless of the amount spent. In general, this benefit offered by some insurers can be availed for a maximum of 2 months in a year.

Intensive Care Unit Benefit

Some insurance companies pay a fixed sum of money every day in the event a policyholder is admitted to an ICU. Typically, this sum is twice the daily hospitalization benefit.

Surgical Cash Benefit

This benefit offers cover for an extensive list of surgeries. A preset sum of money is paid in the event the policyholder needs surgeries covered under the plan.

In addition, Some plans pay for postoperative care for a number of days specified.

Room rent waiver

Many health plans have a limit on room rent. This add-on cover offers a way around this and allows the policyholder to stay in a room of his/her choice. This is a helpful feature especially in metro cities, where room rents are high.

Maternity rider

Most health plans that cover maternity usually have a waiting period of four years. However, with this rider, the wait can be reduced from four to two years. This may be useful to those planning to start a family.

We have discussed the various health insurance plans, the benefits, the add-ons and riders. In part-2, we will focus on how to select the best insurance plan and the do’s and don’ts.

health insurance-part-1-2