Buying Health Insurance with a Small Premium — Go the Top-Up Insurance Way

So you think you are well-insured? After all, you have been having a mediclaim policy for years, and you always pay your premium in time. But is that enough to insulate you from sky-rocketing hospital bills, should something unforeseen happen to you?

What if you are faced with a huge hospital bill at the end of a two-week stay in a posh hospital? Apart from your own insurance, you might even have cover from your company. But all that will cover you for only so much. The rest will have to come from your pocket. There go your savings!

How can you safeguard for such an eventuality? Well, you could take a top-up insurance plan, along with your regular mediclaim policy, and/or the insurance cover extended by your company.

Regular health insurance vs. top-up insurance

A regular health insurance policy is self-explanatory – you buy a policy for a certain sum, you get sick and are hospitalized, you get a bill, and if it is less than your sum assured, the insurance company pays you. Simple (mind the documentation!).

But what do you do when the bill is over and above your sum assured? This is where a top-up plan kicks in – it covers costs after a certain threshold is reached. A top-up health policy is an additional coverage for people who have an existing individual plan, or a mediclaim from the employer. It reimburses expenditure that arises out of a single illness beyond the limit of the existing cover.

This can be illustrated better with an example:

Suppose you have a top-up health cover of Rs 10 lakh sum assured, with a threshold limit of Rs 5 lakh. (A threshold limit refers to the ceiling upto which your top-up policy will not cover you; it will get activated only beyond that sum. It can also be described as the cut-off point beyond which your top-up policy will trigger.) The policy will only cover your expenses beyond Rs 5 lakh. If your claim amount is Rs 8 lakh, it will only pay you Rs 3 lakh (8-5), and not Rs 8 lakh. That is the main difference between a regular health cover policy and a top-up cover.

So, if you already have a health insurance cover of Rs 5 lakh sum assured, and you take a top-up cover up to Rs 10 lakh, with a threshold limit of Rs 5 lakh, you will be covered up to Rs 10 lakh. The first policy will cover you up to Rs 5 lakh, and the top-up will cover you for a sum beyond that up to Rs 10 lakh, but it will be triggered ONLY after the first cover of Rs 5 lakh is exhausted.

Benefits of a top-up insurance

Once you cover your base with a regular policy, but still want a larger cover, it is cheaper to buy a top-up than to increase the size of your existing policy. Here’s how it works:

Suppose you want to take a high cover, say Rs 20 lakh, for your family. You have two choices.

• You could either take a stand-alone family floater policy of Rs 20 lakh, for which the premium would work out to something in the region of Rs 23, 500 per year.
• You could take a family floater of Rs 5 lakh, with the premium working out to roughly Rs 12,500, and add a top-up of Rs 20 lakh, with a deductible of Rs 5 lakh. The premium for the top-up at that amount would work out to roughly Rs 4,500. The total premium will, thus, be only Rs 17,000.

You thus have the benefit of a wider cover at a cheaper price.

Top-up plans, however, usually have a high threshold limit. Apart from having a high deductible, a top-up plan generally covers only single incidence hospitalisation. It will kick in only if your hospital bill exceeds the deductible during a single hospitalization. Suppose you have a top-up cover with a threshold of Rs 3 lakh, and you get hospitalised twice a year with bills of Rs 2.5 lakh and Rs 2 lakh, respectively, the top-up plan will not be triggered.

Top-up plans are cheaper, with the premium being far less than that for a regular policy, because the probability of a top-up triggering is statistically less. The risk for the insurer, thus, is not high.

Remember, however, that top-up health plans are meant to bridge the gap between existing policies and actual costs. A top-up is not a substitute for a regular policy – it simply enables you to buy extra cover at a reasonable cost.

Final Word

Top-up insurance plan – is it right for you?

A top-up policy is like a spare tyre for your automobile – it is of no use until and unless you incur an expense over and above a certain limit. It is ideal in certain situations, but it is not a panacea for all requirements. So, who should go for it?

• Those who have a small regular insurance cover, but would like wider coverage at a minimal cost
• Those who have a group cover provided by their employer, but want to increase their cover
• Those who foresee situations that might require long hospitalization
• Those who can take care of small medical bills themselves (say up to Rs 2 lakh-Rs 3 lakh), but want help in case of bills beyond that by paying only a small additional premium

Suneeta Kaul is a journalist, a writer, and a blogger. She tracks the economy, the corporate sector and the stock markets, and is a keen follower of current events. Having started her career with The Economic Times, she has worked for publications such as The Asian Age, Business India, and Thomson-Reuters, among others.