What is Top Up Health Insurance? – Decoding Insurance

The term ‘correct amount of health insurance’ is a myth. No one can determine what amount will be sufficient to meet any possible uncertainty. The amount is as uncertain as the event itself. Then how much insurance to opt for? Some suggestions I had given in me previous post, Health Insurance – Decoding Insurance. Ultimately it all boils down to how much one thinks is sufficient to meet expenses incurred or the amount whose premium one is comfortable to pay. Okay! Then what about cases of major illness or severe accidents when the expenses shoots up like anything? Do I have to pay for myself or squeeze my resources to force myself to opt for an exorbitant amount of insurance? Fortunately, neither! You opt for Top Up Health Insurance.

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What is Top Up Health Insurance?

Top Up Health Insurance is like another cushion over the traditional Health Insurance cushion. It can soften the fall to an extent further to the Health Insurance. Top Up Health Insurance Policy becomes active after the hospitalization expenses cross a certain pre-determined amount, known as deductible. Any expense beyond deductible is admissible under Super Top Up Health Insurance. The deductible, in turn, may be covered by a traditional Health Insurance Policy or you may decide to be your own insurer for that amount. There are two variants available in the market. First one (Variant 1) provides cover if any single hospitalization expense crosses the deductible. Second one (Variant 2) provides cover if cumulative expenses from all hospitalizations in a year crosses the deductible. Cover is available till an amount of insurance chosen for the Top Up Mediclaim Policy, beyond which expenses will not be covered by either policy.

Let’s have illustration for better understanding:

Assumptions: Health Insurance Policy – 3L, Top Up Health Insurance Policy – 7L (after 3L deductible)

Hospitalisation 1: 2L, Hospitalisation 2: 3L, Hospitalisation 3: 3L (all in same year)

Variant 1:

For Hospitalisation 1

  • Base Health Insurance policy pays 2L, amount of insurance remain 1L, amount unpaid is 0.
  • Super Top Up is not active as deductible not crossed for single hospitalisation.

For Hospitalisation 2

  • Base Health Insurance policy pays 1L (amount of insurance remaining), amount of insurance remain 0, amount unpaid is 2L.
  • Super Top Up is not active as deductible not crossed for single hospitalisation.

For Hospitalisation 3

  • Base Health Insurance policy pays 0 (amount of insurance exhausted), amount of insurance remain 0, amount unpaid is 3L.
  • Super Top Up is not active as deductible not crossed for single hospitalisation.

So, in spite of having two health insurance policies out of 8L expenses incurred, only 3L is payable.

Variant 2:

For Hospitalisation 1

  • Base Health Insurance policy pays 2L, amount of insurance remain 1L, amount unpaid is 0.
  • Super Top Up is not active as deductible not crossed for cumulative hospitalisation.

For Hospitalisation 2

  • Base Health Insurance policy pays 1L (amount of insurance remaining), amount of insurance remain 0, amount unpaid is 2L.
  • Super Top Up is active as deductible is crossed for cumulative hospitalisation. Unpaid 2L is admissible under Top Up Health Insurance Policy, amount of insurance remain 5L, amount unpaid is 0

For Hospitalisation 3

  • Base Health Insurance policy pays 0 (amount of insurance exhausted), amount of insurance remain 0, amount unpaid is 3L.
  • Super Top Up is active as deductible is crossed for cumulative hospitalisation. Unpaid 3L is admissible under Top Up Health Insurance Policy, amount of insurance remain 2L, amount unpaid is 0

So, entire 8L incurred is payable through two health insurance policies.

Why Top Up Health Insurance if important?

  1. Helps you to considerably increase your effective amount of insurance without significant increase in premium. This being for the simple reason that, the top up policy will payonlywhen the deductible will exhaust and such cases will be rare.
  2. Instead of taking one policy of high amount, take the policy for moderate amount and cover the rest with a Top Up Policy.This is more cost effective.
  3. These policies normally do not have any sub limits or flowery covers, so entire amount admissible is payable.

Important points to note while opting

  1. My suggestion will be to choose variant 2, popularly known asSuper Top Up Policy.
  2. Opt for floater cover (i.e., covering all members under one amount of insurance), with separate policy for old member or member with chronic illness. It is cost effective, and easier to manage.
  3. Like your base Health Insurance Policy, this policy will have its own waiting periods.So read and choose wisely.
  4. Higher the deductible opted, lower is the premium.
  5. Deductible should be the amount which is already covered by any other policy or the amount you are comfortable to bear yourself.

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.

Link to other blogs in the series:

  1. Decoding Insurance
  2. Health Insurance – Decoding Insurance
  3. Critical Illness Insurance – Decoding Insurance
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