The importance of buying a top-up plan with health insurance policy

Health insurance is a must-have product, but more important than buying a policy is to ensure that your health insurance cover is adequate. The policy should be able to cover any major instances of hospitalisation, else it could set you back by lakhs of rupees.

What if you are unable to afford the premium for the amount of cover you need? You should not go under-insured and you can get over this constraint with a top-up plan.

What is top-up health insurance?

It is like a basic health insurance policy that covers hospitalisation. But it does so only after a threshold is crossed.

In insurance parlance, this threshold is called the deductible, and it is that portion of the claim amount that is not covered by the top-up plan and has to be paid by the insured.

Let's say you buy a health insurance policy for a sum insured of Rs2 lakh and a top-up plan with a cover of Rs5 lakh, with a deductible of Rs2 lakh. And the hospitalisation bill amounts to Rs3 lakh.

If you have a top-up plan with a base plan, the base plan would pay Rs2 lakh of this bill, and the top-up plan Rs1 lakh. Effectively, you would have a cover of Rs7 lakh. However, if you only had the top-up plan and did not have a base plan, you would have had to pay Rs2 lakh out of your pocket, because your Rs2 lakh-deductible top-up plan would pay only Rs1 lakh of the bill.

Price difference between regular plan and a top-up plan

Most top-up plans today are cashless, according to Coverfox.com. And the price advantage is significant. The deductible feature of a top-up plan makes it cheaper to buy as it reduces the liability of the insurer.

For example, the top-up plan in the example above can be had for less than Rs2,000 per annum for a 35-year-old, while the regular indemnity product for a sum insured of Rs5 lakh would cost over Rs5,000. You should also ensure that you pick a top-up plan that is on an aggregate basis, so that it clubs many cases of hospitalisation and not just single instances to calculate the deductible.

In arrangement with HT Syndication | MINT

This article was originally published on September 27, 2016.