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Good time to revisit your health cover needs

Good time to revisit your health cover needs
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First Published: Tue, Feb 01 2011. 09 30 PM IST

Updated: Tue, Feb 01 2011. 09 30 PM IST
Tired of paying inflated claim amounts, last year state-run insurers decided to put an end to it. They created price bands—across various categories of hospitals for around 42 surgical procedures—to settle cashless claims, refusing to entertain cashless claims of hospitals that didn’t agree with the price band. The logic: with medical costs spiralling, inflated bills were too much to afford.
After remaining at loggerheads for a few weeks, most hospitals relented. Until then, hospitals used to unreasonably inflate bills as soon as they knew that the patient had a health cover.
The battle between the insurers and the hospitals had a lesson for the common people too: that medical costs are high and are expected to keep rising. And it is for this reason that we recommend a health insurance policy for individuals in all age groups.
The government, too, nudges you to buy this must-have cover by giving tax incentives on the premiums you pay. Under section 80D of the Income-tax Act, the premiums qualify for tax deduction up to Rs 15,000 and an additional Rs 20,000 if you buy health insurance for your parents who are senior citizens. If you are a senior citizen yourself, you can claim up to Rs 20,000 for premiums paid for your own policy and another Rs 20,000 if you are buying for your parents.
You should have your own individual cover even if your employer provides you with one. So if you don’t have a cover or have too little, now is a good time to revisit your insurance needs. Here’s how to go about it.
The basics
Health insurance is an indemnity policy that pays your hospital bill. It also reimburses expenses incurred before and after hospitalization. These days, health insurance is cashless—you show your health insurance card and your hospital settles your bill with the insurer directly. If the hospital falls outside the insurer’s list of network hospitals, you pay up and then produce the bills for reimbursement.
Choosing a plan
Sum insured: Unlike a life insurance policy, where the sum assured can be a multiple of your income going by the simple thumb rule, there is no way to calculate your health insurance need. However, if the average cost of major surgeries can be used as a reference, then having a sum insured of at least Rs 2 lakh is important.
Says Neeraj Basur, chief financial officer, Max Bupa Health Insurance Co. Ltd: “One needs at least a cover of Rs 2 lakh, but for a family the sum insured should be equal to the household income. Having said that health insurance should be reviewed every three years.”
Type of plan: To begin with, you need an individual policy. As your family expands, you can bump it up with a family floater plan. A family floater plan considers the family as one unit and covers all the members of the family.
However, buying policies for individual members of your family with a single insurer is not the same as buying a floater plan. In a floater plan, even if one family member makes a claim, the sum insured is reduced for the entire family by the amount claimed. You need to keep in mind the age demographics of your family. Says Ajay Bimbhet, managing director, Royal Sundaram Alliance Insurance Co. Ltd: “When buying for a family, check multiple options. Sometimes it is useful from a cost point of view for the oldest member of the family to have a separate policy otherwise it may prove very expensive for the entire family as a whole.” Also remember since a floater policy treat the entire family as a unit you need to have appropriate cover. Says Sudhir Sarnobat, founder, Medimanage Insurance Broking Pvt. Ltd, a health insurance broking firm: “You need at least a cover of Rs 6 lakh under a floater policy. So even if one member in the family needs the cover in a year, other members will still have enough to cover them the same year, a possibility that’s rare.”
Supplementary plans: Other than pure indemnity policies, you can consider defined benefit policies to supplement your basic cover. Defined benefit plans give you a lump sum and can be categorized as critical illness plans, surgical benefits plans, hospital cash plans and savings plans.
A critical illness policy is the most popular among these. It gives a one-time benefit if you suffer from any specified critical illness such as heart attack, cancer, diabetes, kidney failure, major organ transplant or paralysis. Hospital cash policy works as a buffer, providing you a predefined daily cash benefit, irrespective of the hospital costs. A surgical benefit plan is one that pays a lump sum against predefined surgeries.
While the idea of getting a lump sum may sound attractive, there are caveats you need to keep in mind. For instance, a critical illness plan would give you a hefty lump sum but only for predefined critical illnesses. Typically, they have a survival period clause of about 30 days after diagnosis, which means you can make a claim only after you survive 30 days after diagnosis.
Even policies that pay a lump sum on surgical procedures are not very efficient. Says Shreeraj Deshpande, head (health insurance), Future Generali Insurance Co. Ltd: “The insurer knows what his loss is through defined benefit policies but you have no idea what your medical expenditure will be. For example, you may take a policy that defines the limit on a particular surgery. But if your hospital charges extra, you will have to shell out to plug the gap.”
What to do
For yourself: Our advice on health insurance is similar to what we told you about life covers: keep it simple and don’t mix benefits. Start with a basic health insurance plan and top it up with a family insurance plan.
However, if your family has a history of serious ailments or if your lifestyle is stressful, then you can top up your health insurance portfolio with a critical illness plan. A critical illness plan is meant to support your loss of income in case you are diagnosed with a serious ailment.
But you can avoid a hospital cash plan if you have emergency funds for six to eight months of expenses.
For parents: Older individuals being blatantly denied a cover is an old story now. In May 2008, the Insurance Regulatory and Development Authority made it mandatory for the insurers to offer health insurance at least till the age of 65 years. So till 65 years of age, you can buy a new insurance policy afresh. However, you will have to take all the prescribed medical tests and the insurer reserves the right to refuse you a cover in case your medical condition is adverse.
Moreover, with the advent of stand-alone insurers, the competition is only making the market more friendly. There is hope for individuals even above 65 years of age. Some state-run insurers and even private insurers such as Bajaj Allianz General Insurance Co. Ltd cover individuals beyond 65 years of age in their exclusive policies for senior citizens. Stand-alone insurers such as Max Bupa Health Insurance has no entry age limit.
However, buying a cover late in life has its disadvantages. Sums insured are, typically, restricted to about Rs 3-4 lakh and insurers insert a co-payment clause. A co-payment clause means that every time an insured person makes a claim on his health insurance policy, he will have to bear a portion of the claim amount according to a pre-decided percentage.
Assess your health insurance needs this season and buy appropriately. It is likely that you would continue to enjoy the tax incentive even under the direct taxes code (DTC). DTC proposes that the premiums on health insurance on behalf of your family qualifies for deduction up to Rs 50,000.
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First Published: Tue, Feb 01 2011. 09 30 PM IST