Health insurance: when mediclaim may not be enough

Until recently, health insurance was, for perhaps a majority of people, synonymous with a mediclaim policy enjoyed in the form of an employee benefit or purchased as an individual or family policy.

Such indemnity health plans play a significant role in protecting one in case of medical exigencies, but these alone may be an insufficient safeguard in case of serious emergencies.

With healthcare inflation rising at over 20 per cent year on year, the cost of medical treatment has skyrocketed; even a minor surgery can set you back a hefty sum.

In case of a severe condition like a heart attack, stroke, organ failure or a major accident, a basic health cover with a sum assured of Rs3-5 lakh would not be enough to tide over the cost of treatment.

This is where top-up plans come into play.

Top-ups are essentially add-ons to the base health cover. They function similarly to indemnity health plans, covering the insured`s hospitalisation expenses. They are meant to provide compensation to the insured for additional expenses, once the cover on the base plan is exhausted.

Top ups have a high deductible limit. This deductible limit refers to the threshold amount that the policyholder must bear himself before he becomes eligible to make a claim. The deductible on top-up plans typically ranges from Rs1,00,000-Rs5,00,000.

How does a top-up plan work?
Let us say X has an individual mediclaim policy with a sum assured of Rs4,00,000. In addition, he invests in a top up plan with a sum assured of Rs10,00,000 and a deductible of Rs4,00,000. X is hospitalised for a heart attack and needs a pacemaker implant The total cost of treatment amounts to Rs12, 00,000.

In this case, Rs4,00,000 would be settled out of his mediclaim policy. After this the top-up plan come in to play and to reimburse the remaining amount of Rs8,00,000.

One thing to remember when you take a top up plan is to ensure the cover of the base plan is at least equal to the deductible of the top up plan, so that your expenses are met smoothly.  

Who should take a top-up plan?
A top-up plan is a good way to boost the coverage you get from your health policy; you should opt for it if you have a low sum insured on your indemnity health plan.

Those who have a family health policy provided by their employer should also consider top-ups to get further protection, since group policies typically have low coverage limits. A top up is a cheap way to enhance health cover for those who have a low cover owing to their occupational rank.

But in case you have a family floater policy covering your spouse and young children, you should consider a top-up only for yourself. Given the increasing occurrence of lifestyle diseases and the substantial costs these might entail, it is advisable to have a top-up.

Top-ups and riders
Top-ups are often confused with riders; but the two are designed to meet very different needs. A rider is taken as an add-on to a health policy and is meant only for a specific purpose. For example the common riders - hospital cash, personal accident and critical illness - can only be invoked for the specific reason for which they are designed.

A top-up, on the other hand, functions almost exactly like an indemnity health policy and can be used for reimbursement of all hospitalisation-related expenses, subject to the policy terms. Moreover, unlike riders, top-ups can even be purchased as independent plans. Thus you can take the top-up from a different insurer than your base policy provider. So even if you have a number of riders, a top-up plan may still be a good idea.

Top-ups or multiple health policies?
One may argue in favour of taking more than one health insurance policy to have enhanced coverage, rather than taking a top-up. However, a top-up usually works out cheaper. Since the deductible limit on a top-up is relatively high, the insurer is covered for a higher amount - and at the same time, the premiums levied are typically lower making top-ups an affordable way to increase one`s health cover.

Moreover, multiple health policies would also lead to administrative difficulty. As, in the case where a claim has to be made on both policies simultaneously, you would have to ensure that the first company returns the original documents in time to file the next claim, lest  the second claim  be rejected.

Things to consider in a top-up plan
Top-ups can usually only be used for a single incidence of hospitalisation. Also, the threshold amount should be crossed in one single event of hospitalisation. For instance, if you have a top up with a deductible of Rs 4,00,000 and you get hospitalised twice in the same year with your  expenses amounting to Rs 2,00,000 in each case, the top up will not be applicable.

So while choosing a plan, research well, take into consideration the policy benefits and exclusions, and then arrive at an informed decision. The most convenient way to do so is to carry out a comparative assessment through online portals and then purchase the top-up plan at the click of a button.