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Friday, March 13, 2020

Strategies and Clauses while choosing a Health Insurance Policy


[Last Updated: 13-Apr-2023]
You may not need Life Insurance after a certain stage of life. 
But Health Insurance is one insurance you would love to have until the last day of your life. Choosing a right health insurance policy, selecting the right clauses, and adapting a right strategy is the key to protect your wealth, and live with a peace of mind....Read on...

Why Health Insurance?
You may feel fortunate to have escaped death and survived an accident with just a few fractures or even a permanent disability. 
But the reality will soon kick in when you understand the financial implications of your survival, and if you were not possessing an active Health Insurance policy. If you were to be hospitalized for an accident, contraction of a serious disease, or if you were to lose your job because of your inability to work, you better protect your financials with a proper Health Insurance Policy.

Is Health Insurance a substitute for Life Insurance?
Absolutely No. 
A Life Insurance policy comes into effect only in case of your death, and the financial benefit goes to your family. 
On the other hand, a Health Insurance is for you or your family, if they survive a disease or an accident. It is meant to protect your financial corpus in situations while you are alive.

Has Health Insurance become increasingly relevant today?
Of course, with increasing lifestyle diseases, global virus threats, rising medical costs, as well as prolonged life expectancy, carefully selecting a Health Insurance Policy is the need of the hour.

How to choose a Health Insurance Policy?
Selecting a Health Insurance Policy is not only about the policy premiums being cheaper or just about selecting a reliable health insurance provider. Those are obvious criteria, but not the only ones, and many times, the least important ones. 
Other and these, you have to consider many technical factors before deciding on your Health Insurance Policy.
Let us discuss all Factors that influence our decision in choosing the right policy for us.


Factor # 1: Individual Vs Family Floater Plan
Every health insurance provider comes up with two types of broad plans - a health cover for an individual or for a family
Individual Cover
In case of individual cover, the policy is issued in the name of one person only. 
Hence, for all family members that are proposed to be insured, you’ll have to purchase separate policies depending upon the number of members in the family. 
In such a case, each family member will have a dedicated sum assured under the policy. 
Family Floater Cover
In case of a family floater policy, all family members are covered in a single policy
Unlike individual policies where there is a dedicated sum assured, here there is a single 'floater' sum assured which is shared between all members of the family. 
Example:
If there is a couple and one kid having a family floater policy with a sum assured of Rs. 3 lacs, all three members of the family share the Rs. 3 lac sum assured. 
That means the insurer’s maximum liability towards the entire family for a particular year (irrespective of which individual gets hospitalized) stands at Rs. 3 lacs.
Merits of a Floater Plan
1/ Family floater policies are generally a more affordable option for relatively younger families. And that’s a plus especially for young families who are tight on budget for their insurance spending. Premiums of family floater policies are determined on the basis of the age of the oldest family member to be insured.
2/ You are spared of hassle of managing multiple policies, remembering renewal date etc.
3/ Individual policy cannot be taken for minors, and hence the default option in such a case is to purchase a family floater policy.
Demerits of a Floater Plan
1/ The benefits under a family floater policy is generally extended only to the primary insured, his or her spouse and two dependent children i.e. insured members under the floater plan. Very few insurers cover a wide spectrum of relationships in a family floater plan. In case one wants to cover say grandfather or in-laws, anyways one will have to explore an individual plan for them. However, there are some insurance providers now a days, who are willing to cover parents, siblings, parents-in-law and three or four children.
2/ When a claim is made by one member, the sum insured of other members gets impacted / reduced.
3/ In case of claim by one member, the entire No Claim Bonus (NCB) is nullified for the year. This effect is more pronounced in case of recent innovations in health space where you get up to 50% or even 100% of sum assured as NCB for a claim free year.

Policy Selection Strategy Example
Let us take a case study of husband, wife and 2 kids aged 34, 32, 5 and 2 years and parents aged 64 and 58 years.
Option A:
All members in one floater policy of Rs. 10 lacs
But there are very limited options and the cost would be higher, since it the oldest member of the family that drives the cost.
Option B:
Husband, wife and kids in one family floater plan of Rs 5 lacs. Parents in a separate family floater plan of Rs. 5 lacs.
Option C:
Husband, wife and kids in one family floater plan of Rs. 5 lacs. Parents in separate individual health insurance plans of Rs. 5 lacs each. 
Option D:
Husband, wife each kid and each parent in separate individual health insurance plans of Rs. 5 lacs each.  This is going to be an extremely costly option.

What should be your strategy?
1/ First, identify and shortlist the right products on the features.
2/ Cover yourself and kids in one family floater. 
However, if you are high risk or prone to illness, take a separate cover for yourself, and cover rest of family (spouse and kids) in a floater plan. Take care to opt for a sufficiently high sum assured as multiple family members are covered in the policy.
3/ Purchase individual cover for parents. 
4/ The above approach will ensure that you get the benefits of low cost of family floater health insurance policies and at the same time, set up a dedicated sum assured for your parents who may be more prone and susceptible to illness/hospitalization. By doing this, you are also able to protect the NCB under your family floater policy from being nullified in case one of your parents gets hospitalized.
5. While choosing individual vs family floater, premium should not be the only deciding factor. Having said that, it may be a better strategy for young family members to be covered in a family floater and individual dedicated covers explored for high risk or senior citizens within the family.


Factor # 2: Co-payment
High premium costs are a deterrent for anyone seeking health insurance. Settling for plans with co-payment option is one way of keeping premiums low
Co-payment provides a win-win situation for the customer as well as the insurer. 
In this arrangement, the policyholder will need to pay a smaller portion (typically 20%) of the medical expenses on their own and the insurance company will pay the remaining larger amount (80%). 
Since customers start questioning costs charged by hospitals, co-payment brings in discipline.
The terminology "co-payment" is used interchangeably with “co-insurance”. But means the same thing here in India.
Larger co-insurance and co-pay ratios in favour of the insurer mean lower premiums for the insured.
In an effort to reduce premiums, however, do not ignore your liquidity situation. If you have enough liquid cash and can handle 20% of the expenses, opt for co-payment option and enjoy the reduced premium, else do not.
Merits of Opting for a Co-Pay Clause
1/ Discourages people from making unnecessary claims, as they will have to pay a portion of the expense. 
2/ Discourages people from undergoing treatment in expensive hospitals and healthcare centers. 
3/ Encourages honest and judicious use of health insurance policies.
4/ Lower premium for the insured.
Demerits of Opting for a Co-Pay Clause
1/ A person who has to pay a high amount of co-pay is pretty much un-insured, as the whole purpose of the health insurance policy is defeated.
2/ All your premium savings can get washed off by paying your portion of the co-pay clause in a single hospitalization.

What should be your strategy?
I personally do not prefer a co-pay clause. Not having a co-pay clause increases the annual premium but gives me immense peace of mind, since I am not worried at all about the medical expenses (of course up to the policy limit)


Factor # 3: Critical Illness
When you are buying a health insurance, buying critical illness insurance is an important factor to consider. A critical illness policy is a cover that offers to pay you a fixed sum once you are diagnosed with a critical illness that is covered by the policy. 
You can opt to buy a critical illness policy as standalone insurance, or you can buy it as a rider when you buy your regular health insurance. While you can use your regular individual or family health insurance to cover your hospitalisation bills, the lump sum amount that you receive from the critical illness cover can fund other essential expenses associated with your critical illness.

What should be your strategy?
A Rs 5 lacs base cover + Rs 10 lacs critical illnesses cover works out to be cheaper than a comprehensive Rs 15 lacs base cover. However, have a careful look at the list of critical illnesses when comparing two health insurance policies. Critical illnesses are defined by each insurance provider and any illness outside that list will not get the additional cover.


Factor # 4: Top-Up and Super Top-Up
One of the other ways to reduce your policy premium is to take a top-up or a super top-up cover, over and above your base cover.

Top-Up Vs Super Top-Up Cover
Before we understand the difference between the two, we must understand the term 'deductible'.
Deductible is the amount that a policy holder has to pay before the insurance company starts paying up. In other words, the insurance company is liable to pay the claim amount only when it exceeds the deductible. For high deductible policies, the premium is lower while the low deductible policies have a higher premium.

Example (to understand Deductible):
If the deductible of your policy is Rs 30,000 and the claim by the insured is Rs 40,000, then the insurance company is liable to pay only Rs 10,000. However, if the claim amount is less than the deductible, the insurer is not liable to pay any amount. 

In top-up cover, the hospital bill should be more than the deductible limit to get paid. 
In super top-up cover, on the other hand, the total of all hospital bills in a year should be more than the deductible limit to get paid.

Example (to understand Top-Up Vs Super Top-Up)
Assume that you have a top-up plan with deductible of Rs 5 lacs and your medical bill for the year is Rs 8 lacs, but the same is split between four hospitalizations of Rs 2 lacs each. Since each hospitalization cost less than the Rs 5 lacs limit, you won’t get anything from top-up plans. However, the insurance company would have paid you if that plan was a super top-up, as the total expenses incurred was more than Rs 5 lacs in a policy year.

What should be your strategy? [Updated Apr 2023]
The strategy of taking Rs 5 lacs base cover and Rs 10 lacs as super top-up (with Rs 5 lacs as deductible) works out cheaper than a pure base plan of 15 Lacs. 
Legally, you can take base cover and super top-ups from different insurance companies, thereby keeping costs low. However, it is recommended that you take both policies from the same company for the following reasons:
1/ It increases the operational convenience, and you don’t have to handle documentation from two companies.
2/ Cashless reimbursement works only if the base cover and super top-ups are from the same insurer.


Factor # 6: Your child’s cover
If you are approaching towards senior citizenship, or have already reached there, it might work well if you are covered under a family floater paid for by your child. 
While health insurance policies of some companies cover employees, others give options to add parents at a price. 
Though these are good, depending on these alone may be risky. One basic criterion to be used is certainty of its continuance. The corporate insurance will stop once your child leaves the company. Changing companies or starting new businesses are common among the young today, so senior citizens depending only on their child’s corporate cover may be left with nothing at the time of need.
What should be your strategy?
Unless you are constrained by your financials, there is absolutely no need to depend on anyone for your health insurance.

Factor # 7: Sub-limits [Added Apr 2023]
You may have a health insurance policy cover for a certain amount, but it is very important to check your policy proposal to verify whether there are any sub-limits within the overall limit of your health insurance cover.
Example
As an example, if you have a Rs. 5 lacs cover, and you are hospitalized for 3 days, you decide to take a single AC room. The room costed you Rs. 30,000 (Rs. 10,000 per day) and the total hospital bill was Rs. 1 lac. You might assume that this is fine since it is within the 5 lacs annual limit. But it may not be fine if your policy has a sub-limit to the room rent. Say, your policy could have a room rent sub limit of, say, 20% of your total bill. This means that the insurance provider will only pay you Rs, 20,000 for the room bill instead of the expected Rs. 30,000.
What should be your strategy?
Check and ensure that your policy has no sub-limits. A policy with sub-limits will obviously be cheaper than the one without sub-limits. So, do not get swayed by the premiums. Make sure that you are comparing oranges to oranges.

Factor # 8: Migrating a Policy [Added Apr 2023]
What is Migrating a Policy
If you are satisfied with the services and overall experience of your healthcare provider, but are not happy with the product, you can migrate to a different policy with the same provider. Migration of a policy is always within the same health insurance provider.
If an individual has renewed the policy without a break for at least 4 years, migration is allowed without any underwriting, of course, to the extent of existing sum insured and benefits. No underwriting means that your premiums cannot go up and you do not need to update on your latest health status to your health insurance provider.

Factor # 9: Porting a Policy [Updated Apr 2023]
If you are not satisfied with the existing insurance provider, or its services, you have a choice to port your policy to another insurance provider. Look out for a health insurance provider which assures you of porting your existing health insurance (if you have one) or allow you the porting in case you decide to switch to a new health insurance provider at some alter point of time in life. 
Pros of porting:
- Your waiting period for pre-existing conditions is carried over to the new provider.
- You may find a better deal with regards to coverage, service or premiums.
- There are no porting charges.
Cons of Porting:
- You will undergo a fresh underwriting process, and will have to declare all your pre existing diseases.
- You can port only at the time of renewal of policy.
- Porting is only possible between similar policies.


Factor # 10: Select a trusted insurance provider.
Go for a trusted name and look out for a health insurance provider which has a good claim settlement ratio, rather than just going for the cheapest possible policy. Also, understand that the health insurance provider itself is healthy wrt their solvency ratio.

Summary
Health Insurance Policy may not be able to guard you against health issues but can definitely guard you against financial losses because of health issues. It is a gatekeeper to your finances. Choose your gatekeeper wisely.

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Regards

Manoj Arora
Official Website

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