Viewpoint | Use top-up plan to enhance health coverage in a cost-effective manner

A friend working with an investment bank pointed out the poor insurance advice that is making rounds. An insurance column advocated buying a standard mediclaim policy for an employee of an MNC.

This advice was incorrect, he felt.

His said that since the employer already provides coverage, buying an additional base cover leads to duplication as one cannot claim the same expense twice. Instead, a cheaper top-up health insurance might be the way to go.

An MNC employee is covered under a group health insurance policy. Hence, buying a top-up plan with a high deductible makes sense as, by the time they retire, they will have enough savings to fund the deductible. Thereby, saving substantial premium over a couple of decades.

A top-up health insurance provides coverage similar to the standard ground-up health insurance. Both have a waiting period for pre-existing illnesses and specified diseases.

Claim eligibility is the same. The key difference is that the top-up plan carries a deductible.

A Deductible is the claim amount that is borne by the policyholder. The insurer pays only the claim amount exceeding the deductible. For its calculation, an insurer arrives at the admissible claim based on the policy terms and conditions. Then it subtracts the deductible to arrive at the payable amount.

The cost of a top-up plan, for a 35-year old, for a sum assured of Rs 10 lakh with a deductible of Rs 3 lakh and Rs 5 lakh is around Rs 3,400 and Rs 1,300 per annum, respectively.

This cost is substantially lower than the cost of a standard health insurance plan for Rs 10 lakh, which is around Rs 8,000.

The above rate is for a super top-up plan. Herein, all claims made in a year are aggregated to cross the deductible threshold.

In another version, the deductible is applied to each and every claim. Consider the top-up with a deductible of Rs 3 lakh and sum assured of Rs 10 lakh. In a super top-up plan, the implication is that if you incur two claims, of say Rs 2 lakh each, in the same policy year, then a super top-up plan would pay Rs 1 lakh, and a standard top-up plan will pay nothing.

Some employers even provide top-up plan options to employees. Typically, such schemes mirror the benefit structure of the base group policy.

However, the restrictions of a group policy such as room rent capping, and copay, will also apply to the top-up coverage. Group policies tend to be cheaper than individual variants. The major drawback is that the top-up plan will lapse with a change in employment. Hence, we prefer individual-owned top-up insurance.

It is relevant for senior citizens. The standard ground-up health insurance plan for a senior citizen is expensive. A lot of senior citizens want to manage their regular cash flows tightly.

A top-up insurance can provide catastrophic coverage at a reasonable premium. It is also relevant for people with adverse medical history. Insurers are reluctant to issue coverage in such cases, as perceived chances of small value recurring claims are high. Underwriting for a top-up plan is liberal.

However, a top-up plan can only replace standard mediclaim in case an individual has a company owned group health insurance. As it works best if it is used as a supplementary plan, and not a substitute for the base health insurance plan.

Over-reliance on employer-provided group health insurance plan has its limitations too as people change jobs or enter other ventures and health insurance plan may not be available in the next professional setup.

Employers also routinely make changes to the group plan to save costs. Introduction of cost control restrictions such as co-pay, disease-wise capping, and room rent limits, can lead to substantial out of pocket expenditure. A personal plan will allow you to re-claim these deductions.

Even when you buy a top-up insurance set a low deductible as it becomes progressively difficult with each claim as your savings deplete and health worsens.

Neil Patel, a renowned blogger, advocates minimalist, sparse writing. Drop ‘i think’ from sentences because it is understood that you think of the ideas you share. But, adding a few non-essential words, softens the blow of delivering an unpleasant message.

Similarly, a little cushion in health cover softens the uncertainty of good health and gives you a much-needed safety margin to confidently face adversity.


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