Let’s start with Health Insurance, as most can relate to it. India has practically no regulation to control health care cost, albeit price of few items which were regulated recently (i.e., 2017-18). But the health care providers can always find roundabout ways to match the bills raised now with those raised in pre-regulated environment. Because, when the house has no walls what is the use of fixing a door? Government hospitals are mostly not accessible or rather not approachable, since with a population of about 130 Crs our health care spend is less than 2% of the GDP!
Why Health Insurance is important?
So, where do we middle-class Indians find ourselves? We fend for ourselves when it comes to health care expenses. We tend to save for the uncertainty by means of bank savings or fixed deposit. But does it help? NO! Firstly, there is a limit to which one can save. And even if you push yourself to the brink and do save, in case of the hospitalization it all goes and you start all over again. That is where insurance can help. You pay a small premium and the insurance pays for the hospitalization till the amount insured. Next year, you again have the same amount at your disposal. Peace of mind!
Still, Health Insurance is neglected by most in young ages, say till 35 years. We think we will never fall ill or meet with an accident, or wait to have a family or consider the group cover by employer sufficient. Let’s see the draw backs of waiting. The most obvious reason will be, illness and accidents don’t choose its victims by age. In today’s world of lifestyle diseases a 25 year old is dying of heart attack and a 30 year old is suffering from Type 1 or Type 2 Diabetes. Hypertension is also common among the young. Road traffic has increased like anything, with no or minor increase in road space. All these leaves us vulnerable to illness and accidents. Secondly, starting late only defers the waiting periods further which may apply when we need the cover most. Thirdly, group cover has its own limitations in term of exclusions and limited coverage, as the HR will have to trade off in terms of premium and benefits. Without adequate insurance a hospitalization can wipe out our years of savings.
It is considered best practice to cover oneself after getting a job or from 25 years of age, as that is the age our parent’s policy stops covering us. Restrict the sum insured (i.e., the maximum amount for which we are covered) to few lacs depending on the paying capacity. Pay regular premium. Then keep adding to the sum insured for each new member in the family, i.e., spouse and children. The benchmark sum insured shall be the amount perceived to the expense if, God forbids, the family meets with an accident or more than one member is detected with a major illness.
Few keys points to be noted:
- Do your research before buying. Read reviews about company and products. There are several forums to check for company related complaints.
- Policy with no sub-limit for the basic hospitalization cover is considered better than a policy with too many frill. Because, such additional benefits are rarely used.
- Read the terms before buying. Not every expense is payable by insurers. Look for sub-limit, disease wise limits, exclusions, disease wise waiting periods, pre-existing disease waiting period among others. You may utilize service of various web aggregators (i.e., websites comparing policies) for this purpose. Terms are generally available on the company’s website.
- Premium rate shall not be the only distinguishing feature between policies. Do check whether you are comparing apples with apples or oranges! Read between the linesfor the covers you desire.
- Opt for Floater Cover(i.e., one sum insured covers entire family), as they are comparatively cheaper than individual cover (i.e., individual sum insured for each member) for the same total sum insured. But in case of a major claim from one member, the sum insured stand a chance of exhaustion. Products with reinstatement facility can help in such conditions.
- If any member has any chronic illness, take a separate policy for him/ her. Claims from the person may exhaust the floater sum insured.
- Cover parents under separate policy with individual sum insured, for the same reason stated above.
- In my opinion till 35 years old age of the eldest member family cover for 10 lacs shall be sufficient, provided the past family claims history is clear. The tradeoff shall be between affordability and necessity.
- If in any year the sum insured gets exhausted, enhance the same by at least 20% on renewal.
- Take Super Top Up policy(i.e., policy pays when the cumulative expenses of all hospitalisations in year curses a pre-determined amount)to cover the expenses on such years when the cumulative medical expenses crosses the sum insured of the base policy. Super Top Ups are cheaper than traditional indemnity policies. I shall discuss about them in a later post.
- Take a Critical Illness policycovering as many major illnesses as possible.I shall discuss about them in a later post.
- Increasing sum insured to exorbitant amount may not be required, as average health claim size in India is around 50,000 (as of 17-18). This depends on city of treatment (i.e., claim cost in Mumbai is more than Kolkata), treatment taken (i.e., cancer treatment is costlier than ulcer treatment)and can go up to several lacs. Family cover for 20-25 lac shall suffice for most cases, unless you wish to spend your hospital stay in luxury or go abroad for planned treatment.
This is just a guide. The idea is to start early to pay less. There are several product options available from over 30 general insurers in market. Life insurers can no longer offer indemnity hospitalization product, but only critical illness products.
Remember that, under Section 80D of the Income-tax Act the insured person who takes out the policy can claim for tax deductions up to ₹25,000 for self, spouse and dependent children and up to ₹30,000/- for parents.
Links to other posts in the series: