Hello fellow investors
With COVID-19, the one thing that everyone has realized is Health insurance is a must! We all need adequate Health Insurance cover and at a good price. Because whether to have Health Insurance or not is no longer a point of discussion. In fact, now we want to ensure that everyone in the family also has Health Insurance.
We have been asked many questions about whether you should opt for a stand-alone health plan or a family health plan; and whether to opt for a top-up plan afterwards. We are going to break down these concepts for you.
How much Insurance should you have?
Before getting into the discussion of what type of plan, it is important that you know how much insurance is enough for you. Ideally, if you live in a tier 2/3 city you must have a cover of at least 5 lakhs and if you are in a metro/tier 1 city you must have a cover of at least 10 lakhs. These are indicative numbers based on the cost of health incurred in different places and you can always take a higher cover.
What is an Individual Health Insurance policy?
In the case of individual cover, the policy provides specific health cover for each member covered in the policy. You can decide to have a higher cover for the working member and a smaller cover for the children. Each family member will have a dedicated sum assured under the policy.
For example, you can buy an Individual Health policy that gives a cover of INR 10 lakhs each to yourself and your spouse and INR 6 lakh for your elder kid aged 15 and INR 3 lakhs for your younger kid aged 10. The cover amount is specific to each person and not shared among the different members.
What is a family floater plan?
In the case of a family floater policy, all family members are covered in a single policy. Unlike individual policies where there is a dedicated sum assured, here there is a single “floater” sum assured which is shared between all members of the family.
For example, if the family in the above example takes a family floater policy with a sum assured of INR 10 lakhs, all the four members of the family share the INR 10 lakhs sum assured. That means the insurer’s maximum liability towards the entire family for a particular year (irrespective of which individual gets hospitalized) stands at INR 10 lakhs.
Under the family floater policy, medical reimbursements can be availed by any or all of the members subject to the total sum Insured.
Let us compare the prices of family floater and individual policies to understand better:
Case 1 - A couple
Family floater plan premiums are determined based on the age of the older person. Given that this is a relatively younger couple, their premiums are not very different.
Case 2 - Parents with 2 children
In case 2, for older parents, there is a significantly higher premium being paid for a family floater plan. In case there is a predetermined illness that would further push the premium for the entire family. However, the 20 lakhs cover under the floater plan would be available to each family member thus increasing the cover amount at a higher premium.
However, where you have a cash crunch, you can go for a floater plan of 5 lakhs wherein the cover of 5 lakhs is available for all members with a reset clause for a cheaper price. You save around 10 K per annum in the premium costs where you go for a floater plan of 5 lakhs for the family.
The reset clause: Family floater plans come with a reset clause that allows for a 100% reset of the sum insured once in a policy year. This option automatically comes into operation when the sum insured (including the accrued additional sum insured, if any) is already used by one insured person and hence is insufficient for the other. The reset of the policy happens only for an unrelated illness.
For example: In the case above if the husband is sick for malaria and makes a claim of 3 lakhs in a year and later wife gets admitted for a different health issue like blood pressure and has a hospital bill of 4 lakhs. The floater plan will cover it as it would have reset the sum assured. But if the wife is admitted for malaria itself and the bill is of 4 lakhs, only 2 lakhs (to the tune of the original sum assured of 5 lakhs less 3 lakhs claimed by husband) will be payable by the insurance company.
A Family floater policy is value for money and comes a bit cheaper compared to individual policies and that’s a plus especially for young families who are tight on budget for their insurance spending.
No claim bonus: If you do not make any claims under the policy any year, a percentage of your sum insured, say 10%, is added each year to your sum assured. So if in 2019, I do not make any claims under my policy which has a sum assured of INR 5 lakhs, in 2020 when I renew it, my sum assured is increased to INR 5.5 lakhs without any increase in my premium amount. The negative of family floater plan that is that in case of a claim by even one member under a family floater, the entire No Claim Bonus (NCB) is nullified for the year under the policy whereas the same is not true for individual policies.
A top-up plan is a regular health insurance policy that covers hospitalization costs but only after a threshold limit, known as a deductible, is crossed. A deductible is that portion of the claim amount that is not covered by the insurer and has to be paid by the policyholder before the benefits of the top-up policy can kick in.
A top-up plan, therefore, is a cost-effective way to increase your health insurance. You can take a base policy and a top-up over above that policy. This way you can use your base health insurance policy to make a claim up till the deductible amount and use your top-up plan for any payments over that.
Where you want to increase the sum assured of your policy, you can do that only when the policy is due. Top up gives you the option to increase the sum assured at a minimal cost during the year. Hence, Top-up helps you to increase the base sum assured amount for your insurance needs.
What should you do?
The health insurance that you would take would depend upon the age of the oldest member in your family, the number of members, and the premium you are comfortable paying for the same. It would be interesting to check various options and choose which one best suits your needs and pockets.
It is advisable to have separate health insurance for older people or those who are susceptible to illness/hospitalization. By doing that, you are protecting the no-claim bonus clause of the policy and also not paying a higher premium for other insurance.
Hope this helps you understand your insurance needs better.
Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.