Health insurance is a contract between the insurance company and the insured customer in which the insurance company agrees to settle the hospital bills of the insured customer due to any hospitalization as a result of illness, accident or disease during the policy period in return for a considerable amount known as Premium. Health insurance is a necessity for every household due to the increase in medicare as a result of technology and rising inflation. Health insurance is provided by the State and Central governments for the below poverty line households whereas the employees working in any organization are covered under the Group health insurance policies.
It is imperative to have at least one health insurance policy for every household in India to prevent financial distress in case of any hospitalization. One hospitalization can wipe out your entire savings and push you into debt without a health insurance policy. Health insurance policy is a financial planning tool which protects your savings and prevents you from falling into debt in case of any hospitalization.
The hospital bills would be paid by the insurance company in the form of claim amount and the claim can be done as Reimbursement or Cashless depending on the situation of the insured. Cashless claim settlement is where the insurance company would settle the claim directly to the hospital without the need for the customer to pay the hospital bills. The reimbursement claim settlement is a process in which the customer would pay the hospital bills upfront and later claim the amount from the insurance company by submitting all the required documents.
Sum insured in health insurance:
Sum insured in health insurance is the amount of coverage that is provided by the insurance company. Health insurance sum insured is the amount of health coverage provided by the insurance company in return for a considerable amount known as premium. The sum insured in health insurance can range from Rs.50k to Rs.1 Crore for pre underwritten health insurance policies. A pre underwritten health insurance policy comes with fixed sum insured and premium which can be readily sold to the customer.
There is no limit on the sum insured that can be taken by a customer in a health insurance policy, if a customer desires to have a high sum insured health insurance policy which is not available readily then the same can be provided by underwriting with the possible terms and conditions. It is the decision of the customer to decide on the sum insured to be purchased in a health insurance policy as the insurance company nor the agent cannot force the customer to take a particular sum insured. The customer should be wary of the health insurance sum insured requirements as too little sum insured may get exhausted with a single hospitalization and too high sum insured would result in payment of high premium.
How to determine the right sum insured in health insurance?
There are certain factors which are to be considered before finalizing the health insurance sum insured which are discussed below:-
- Age of the prospect: The main factor to be considered while selecting the sum insured in a health insurance policy is the age of the members to be covered in the health insurance policy. Young people may fall less sick and are less prone to illnesses and diseases compared to old people and as a result aged people would require high sum insured to be taken in a health insurance policy. You need to consider the age of the highest member included in the health insurance policy while deciding the sum insured. For instance, if you want to include your parents in your health insurance policy then the sum insured should be adequate to cover their hospitalization expenses. If you are taking the health insurance policy at a lower age, then you can start with the lower sum insured and increase the sum insured with age to balance the inflation and other increments associated with health care.
- Premium paying capacity: The other factor which needs to be considered before deciding the health insurance sum insured is the premium paying capacity of the individual. High sum insured means high premium and it would be not possible for everyone to shell out money on health insurance. Health insurance is not a one time investment where if you pay once the coverage would be available life long. Health insurance policies are to be renewed every year and it includes a financial commitment on the part of the insured customer. If you are not able to pay the premium regularly, the health insurance policy would lapse and the health coverage would not be available in times of need. Hence, it is very important on the part of the customer to analyze the premium paying capacity before deciding on the health insurance sum insured. There are many instances where the customers would not renew their health insurance policy during 1st or 2nd renewal.
- Health history in the family: The health history in the family also decides the health insurance sum insured to be taken at the time of purchasing a health insurance policy. If there are any adverse health conditions in the family, then it is highly likely that you would be affected with those conditions at some point of time and might require hospitalization. For example, if your family has a history of Cancer or Diabetes then it is highly likely that you would be affected with those diseases and may require hospitalization. It is widely known how expensive it would be to take treatment for Cancer and other diseases nowadays. This is the reason health insurance companies ask for any health conditions in the family at the time of filling the proposal form, with the data available in the proposal form the health insurance companies try to analyze the probability of hospitalization due to those hereditary diseases. It is advisable to take a higher sum insured on your health insurance policy if there is any medical history in your family.
- Number of dependents: Health insurance sum insured can be decided by number of dependents to be covered in the policy. If there are more dependents to be covered in the health insurance policy, then higher sum insured should be selected. Higher the number of dependents, higher would be the chance of hospitalization as well as the number of times of hospitalization would also increase. If there are more dependents with age more than 40 years, then there is a high probability of repetitive claims.
- Existing health insurance coverage: The health insurance sum insured should be decided after taking into consideration the existing health insurance coverage you are having. For instance if you have an employer sponsored health insurance policy with Rs.5 L sum insured, then you can either opt for a top-up or an individual health insurance policy. The sum insured should again be decided by keeping the above factors in mind.
Top up & Super top up in Health insurance
There are health insurance top up and super top up which are available in the market, which could be taken as an add-on to the existing health insurance policy. Let us understand the concept of Top up and super top up sum insured in a health insurance policy:-
- Top up: A top up health insurance plan provides additional health insurance coverage to people having an existing individual health insurance policy or an employer sponsored health insurance policy. The top up health insurance plan comes into action when the existing health insurance plan’s sum insured is exhausted. It is important to note that the top up health insurance plan comes with a deductible or excess which means that the coverage would start only after exceeding a certain claim amount. For example Mr.X has taken a health insurance policy with Rs.5 Lac sum insured and has purchased a top up plan with Rs.10 Lac sum insured and a deductible of Rs.3 lacs. If there is a claim of Rs.8 Lacs, the individual health insurance plan would pay Rs. 5 Lacs and the remaining Rs.3 Lacs had to be paid by Mr.X as the minimum deductible in top up plan is Rs.3 Lacs. Any claim amount above Rs.3 L would be paid by the top up plan up to the sum insured. For instance if there is a second claim in the same policy period of Rs. 4 Lacs, then the top up plan would pay only Rs.1 Lac and the remaining amount has to be paid by the insured as the base sum insured in the individual health insurance plan is exhausted.
- Super top up: The super top up health insurance plan also has a deductible limit before the claim is settled. The difference between top up and super top up health insurance plan is that the super top up plan considers the aggregate of all the claims made in a policy year. For instance, let us consider the deductible in the super top up plan is Rs.3 Lacs and the total sum insured is Rs.10 Lacs. If the first claim amount is Rs.3 Lacs, second claim is Rs.3 Lacs then the super top up plan pays the second claim amount as the deductible concept is satisfied during the first claim itself. It is very important to understand the difference between top up and super top up health insurance plan as the super top up health insurance plan considers the aggregate deductible in the policy period.