Instead of taking a large health cover, use top-ups to boost it

Given the increasing medical costs, some insurers and aggregators such as Max Bupa, Religare Health and Policybazaar are recommending a ₹1 crore cover, with the rationale that a high-value cover would provision for treatment abroad, offer higher room category and cover all degrees of ailments or diseases. According to Policybazaar, a ₹1 crore cover on an average costs ₹30,000-35,000 for a 40-year-old individual.

But do you really need a ₹1 crore health cover?

Ideal sum insured

It’s imperative to take the future costs of treatment into account while buying insurance. An 8% medical inflation would mean the cost of a procedure will increase from, say, ₹6 lakh to about ₹13 lakh in 10 years.

“Younger families need a larger cover as they are likely to fall prey to chronic diseases later in life, by which time medical inflation will drive up costs. Also, new therapies could be costly, and the difference between life and death will be the ability to fund clinical costs," said Joydeep K. Roy, partner and leader, insurance, PwC India.

However, this doesn’t mean you delay buying health insurance because as you age, insurers look at you as a high-risk proposition, resulting in stringent underwriting and higher premiums.

Typically, ₹1 crore covers are bought by high net-worth individuals because they either travel abroad for their healthcare needs or avail of services from high-end providers. If you’re buying a ₹1 crore cover while you’re still young, the premium may look attractive but there’s more to it than meets the eye.

“Taking a ₹1 crore floater cover can be a buy-it-forget-it strategy, insulating the family from future healthcare expenses. However, one must not buy these policies simply because of attractive premiums. Be aware of the fact that as you grow older, premiums can spike significantly. Insurers can also apply for a premium hike," said Mahavir Chopra, founder, Beshak.org, an independent research platform for insurance buyers.

Financial planners too don’t recommend going for a base policy with a high sum insured. “The premium increase will be huge as you grow older," said Melvin Joseph, a Sebi-registered investment adviser and founder of Finvin Financial Planners.

“In my opinion, given the healthcare inflation of around 7%, every adult in the family needs a hospitalization cover of ₹10 lakh-15 lakh. So if a family has two adults and two children, one must target holding a health insurance cover of ₹20 lakh-30 lakh, and of course utilize super top-ups," said Chopra.

According to Naval Goel, CEO and founder, PolicyX, for a 30-year-old male, a ₹1 crore base cover would cost about ₹30,000 annually. However, a ₹20 lakh base cover with ₹25 lakh top-up would cost about ₹20,000.

Affordable options

Top-up plans serve as a great way to increase the cover but also keep the costs in check. A top-up is a regular indemnity plan that covers hospitalization costs but only after a threshold limit is crossed. This limit is called deductible. “Essentially, these are plans with a high deductible amount. They are affordable because the cost of medical treatment doesn’t go beyond ₹10 lakh very often. “If you buy a ₹50 lakh top-up cover with a deductible of ₹10 lakh, then the policy will kick in only if the cost goes beyond ₹10 lakh," said Goel. The cost up to ₹10 lakh has to be borne either by the policyholder or the base cover.

Another option is to buy a family floater that provides health cover to the entire family unit in a single policy. Typically, if one member of the family makes a claim in a year, the cover reduces by that much on the entire unit or family for the remaining year. Some plans also restore the sum insured, but they could come at a slightly higher cost.

Premiums for family floaters are decided based on the oldest member covered under the plan. Lovaii Navlakhi, managing director and CEO, International Money Matters, said there are ways to bring down your costs by applying probabilities of all family members making a claim together. “The quantum between the base policy, floater and top-up will be determined by each individual differently, based on their estimate of costs, family history, probability of claim and budget."

If you have a family history of chronic illnesses, you could look at higher sum insured or buy a critical illness policy. These are defined benefit plans that pay a lump sum if a claim arises.

Mint’s take

Even if policies with a high sum insured look affordable now, there’s no assurance they will continue to remain that way. “An insurer can increase the premium based on the claims experience. Only those who are ready for that should go for high base policies. Otherwise ₹25 lakh-30 lakh coverage through a base policy of ₹5 lakh-10 lakh and a super top-up is just fine," said Joseph.

Also, avoid plans that come with sub-limits on room rent because you could end up bearing a chunk of the hospital bill if you opt for a room that costs more than what your policy contract covers.

Uncertainty around health is only increasing given our lifestyles and now the pandemic. If you can’t spare too much, opt for a policy that fits your budget, but you must buy one.