Ask any individual about their health insurance coverage and the basic sum insured would typically range between Rs.2-5 lakh. This primary cover does not usually prove to be sufficient with passing age and increased health care costs. Any lifestyle disease or any complicated medical condition in the future can easily consume the entire health cover in one go. One has to pay a huge sum then from the own pocket. Health insurance cover thus needs to be reviewed at regular intervals and should be enhanced, especially after crossing 40. So, how do you increase insurance coverage at optimal costs? This is where top-up insurance is very useful and cost effective compared to buying additional basic health insurance.
What is top-up insurance?
A top-up health insurance plan is nothing but an extended coverage that can be availed once the limits of your basic health insurance plan get exhausted. It is generally taken as an additional cover to add to the existing base cover at economical costs. The plan comes with a sum insured and covers hospitalisation costs but only after a specific threshold limit is surpassed. In insurance parlance, this limit is called the ‘deductible’. Deductible is the portion of the claim amount which the insurer does not cover and has to be borne by the person insured. Once the claim exceeds the deductible limit, the top-up plan can be utilised to pay the balance costs.
How does a top-up plan work?
For example, suppose you have a basic health cover of Rs.3 lakh and a top-up cover of Rs.8 lakh. The deductible limit is also Rs.3 lakh. If you have a medical claim of Rs.10 lakh, you can utilise your Rs.3 lakh base policy cover. Once the threshold limit is exhausted, the top-up cover would come into effect which would pay the balance Rs.7 lakh. The top-up plan will thus play a crucial part in paying the balance medical bills which otherwise you would have to be bear on your own.
Why top-up insurance?
Top-up plans provide higher insurance coverage at very affordable premiums. To illustrate, suppose a 40-year old individual has bought a Rs.5 lakh cover from an insurance company. He wants to double the sum insured to Rs.10 lakh. If he chooses to upgrade his existing plan by Rs.5 lakh, he will have to shell out an additional premium of Rs.5,400. On the other hand, if he buys a top-up cover of Rs.5 lakh with a deductible limit of Rs.5 lakh, it will cost him just Rs.1,570 a year. Cost-wise, top-up plans are thus a lot cheaper than a regular health policy. Just like a regular insurance plan, premiums paid on top-up cover also qualify for section 80D tax deduction.
Things to consider before buying a top-up plan:
Coverage: If you do not have any dependants, you can take an individual top-up policy. You can opt for a floater plan if you are married and have kids. The maximum entry age for top-up policies of most insurance companies is 65 years. So, a separate top-up policy can also be taken for senior citizen parents which can reduce the costs. Also, consider the medical history of your family to determine the coverage for top-up plan.
Deductible limit: As mentioned earlier, deductible limit will be the amount borne by the insured before the top-up policy kicks in. It is thus important to check out the deductible limit offered by the insurance company. Usually, higher the deductible, lower is the premium of the top-up plans. That doesn’t imply choosing a top-up policy with a higher deductible. Ensure that the deductible limit is at least close to the sum insured of your base policy.
Pre-existing diseases and Exclusions: Just like primary health insurance plans, top-up policies also have provision of pre-existing diseases. Most policies do not cover pre-existing ailments unless 3-4 years have passed. Similarly, certain ailments like cataract, hernia, etc are excluded for two years since the inception of the policy. Further, there are permanent exclusions like HIV related diseases, cosmetic treatment, congenital diseases, etc. There are a few top-up plans which cover organ-donation related costs, maternity costs, etc while many do not. So, it is important to read the policy wordings of your top-up policy carefully to understand the benefits for various treatments, the waiting period for certain diseases and for ailments which are permanently excluded.
Restrictions: Look out for certain restrictions in top-up policies. For instance, sub-limits can restrict the extent of coverage of your policy. It can limit claim amounts with respect to room rent, operation theatre charges, etc. There are various sub-limits on specific types of surgeries and treatments. Check whether your top-up plans have sub-limits and try to ensure it is as least as possible. Also, check whether there is a provision of co-payment in the top-up plans. It is a fixed percentage of bill you will have to pay while claiming medical expenses. This percentage usually varies around 10-20 per cent.
Can a Top-up cover be bought as an independent cover in the absence of a health insurance plan?
Yes, a Top-up cover can be bought as an independent policy. This is even if an individual does not have a regular health insurance plan. In that case, any medical expenses up to the deductible limit will have to be borne by the insured from own pocket. To conclude, a top-up plan makes sense when you want to increase the cover without paying too much. The idea is to buy extra cover at a reasonable cost. So, as a part of your overall financial planning process, you must definitely consider taking a top-up cover for a sufficiently large sum.