Health insurance is no longer a stand-alone product. With several life insurance companies entering the health business, a policyholder can now make investments along with health coverage under one policy. But, how good are these policies? Can buying a single policy take care of all your insurance needs?
Industry analysts say mediclaim policies and health plans of life insurance companies are different schemes, aimed at different needs.
“Health insurance cover is a more comprehensive cover,” says Kartik Jain, marketing head at ICICI Lombard General Insurance Co. Ltd. “Life insurance health plans pay you cash but only for certified diseases.” Some of those certified diseases are cancer, heart attack and kidney failure.
Simply put, under new health plans, the insured can get health and savings benefits, but they cover only certified diseases. A mediclaim policy, however, provides for reimbursement of most hospitalization expenses in lieu of a premium, paid annually.
Going by the different needs served by these two products, a health plan can better serve as a top-up of your mediclaim policy.
“Mediclaim policy is more important than a health plan for the policyholder,” says Rahul Aggarwal, of Optima Risk Management Services, a Delhi-based insurance broker.
Recently, Life Insurance Corp. of India, Reliance Life Insurance Co. Ltd and Max New York Life Insurance Co. Ltd have entered the health business with unit-linked policies, where returns are related to stock market performance.
A policyholder can’t claim from two mediclaim policies at the same time for the same disease. However, with mediclaim and health plans, a claim can be filed twice for the same disease.
“The purpose of insurance for a policyholder is only to meet expenses and not making profit out of a policy,” says C.S. Rao, chairman of the Insurance Regulatory and Development Authority, the industry regulator. “A person can claim from both the policies (mediclaim and health plan) but the total reimbursement should not exceed the total expenses.”
Track reducing balance benefits
Does your bank charge you interest on a reducing balance method or at a flat rate on your long-term loan? Many of us, in a hurry to sign on the dotted lines, ignore these basic questions and end up paying almost as much in interest as the borrowed sum.
Different financial firms use different time periods to calculate the outstanding principal, but small precautions—such as selecting the right interest payment option—can go a long way in saving your hard-earned money.
If you select the flat rate method, interest will be computed on the total loan amount throughout the tenure of the loan. So, if you borrow Rs10 lakh at 10% per annum, the interest will be charged at 10% on Rs10 lakh throughout the tenure.
If it’s the reducing balance method, interest is charged only on the outstanding balance, which reduces every time you pay an instalment. So, the equated monthly instalment (EMI) is calculated using a method in which the interest is based on the new amount you owe after paying each instalment. As a result, you pay less interest compared with the flat-rate method.
Reducing balance can be on an annual, monthly or daily method. In case of the annual reducing method, the outstanding balance is reduced only after the completion of one year, while in the monthly reducing method, it’s adjusted after each EMI. Annual reducing loans are rare, given that more outflow of money is involved.
Given the difference that interest rate calculation can make to your loan, you need to be aware of the frequency with which the balance is reduced.