personal finance

Should you buy health insurance with higher sum insured or add top-up policy?


If you are confused between whether to buy a health insurance policy with higher sum insured or go with a basic sum insured and additionally buy a top-up plan over and above it, then here is a comparison which may help you understand the difference between the two.

Both options have their own set of pros and cons.

A. Opting for health insurance with a higher sum insured
Health insurance plans with higher sum insured are expensive but they provide greater ease at the time of claiming reimbursement under the insurance policy. Amit Chhabra, Head- Health Insurance, Policybazaar.com said, “You can easily claim the entire sum insured. Apart from this, if you wish to port your health insurance policy to a different insurer, your entire sum insured would be carried to the new insurer without any hassle.”

B. Opting for health insurance with a top-up plan
Like a regular indemnity health insurance policy, a health insurance top-up plan also covers hospitalisation costs. Increasing your sum insured through health insurance top-ups plans is cost-effective as the premium payable for a top up plan is normally less than what would be payable if you increased the base sum assured by the same amount as the top up.

However, Rakesh Goyal, Director, Probus Insurance said, “The reason behind the lower premium is that insurers don’t offer these top-up plans without a deductible amount. The deductible amount is to be paid by the policyholder for the treatment cost before policyholders can file a claim under a top-up plan. So, if the treatment cost crosses the deductible amount mentioned in the top up plan, then the top-up policy can come to the rescue.”

Policyholders have the option of choosing a specific deductible amount. There are insurance policies where a deductible applies to the base policy also.

Naval Goel, CEO, PolicyX.com said, “While a health insurance top-up plan would be cheaper, the room rent allowed, in many cases, would be a percentage of the base policy only, and not the aggregate of the base policy plus top-up. So, if the sole purpose of taking a top-up is to increase the room rent limit, then it might not be useful.”

Goel added, “Top-up plans are ideal for those people who own a base/regular health insurance policy but do not have sufficient cover to deal with a huge medical emergency. For instance, it is for reimbursement of expenditure which arises out of single illness beyond the limit of the existing cover.”

Let us take the example of a 30-year-old male who has purchased a health insurance policy with a top-up plan for a total sum insured of Rs 1 crore. Here, the base/regular policy has a sum insured of Rs 5 lakh and the top-up plan a sum insured of Rs 95 lakh. Reimbursement of claims works as follows under different scenarios.

  • If there is a single claim of Rs 4 lakh in an year, then the regular/base health insurance policy will pay Rs 4 lakh.
  • If there is a single claim of Rs 47 lakh in an year, then the regular policy will pay Rs 5 lakh (minus deductible) and the remaining claim amount of Rs 42 lakh (minus deductible) will be paid through the top-up plan.
  • If during the year there are three separate claims of Rs 3 lakh, Rs 2 lakh and Rs 2 lakh aggregating to Rs 7 lakh, (i.e., no individual claim is more than Rs 5 lakh) then in such a case, the insured will have to pay Rs 2 lakh from his pocket. Here the base policy of Rs 5 lakh will only reimburse the first two claims of Rs 3 lakh and Rs 2 lakh. In this case, the top up policy will not be applicable because no individual claim is more than Rs 5 lakh and for each claim only the base policy is available.

Chabbra said that if a non-smoking, 30-year old male, residing in a metro city, buys a regular health insurance policy with a top-up plan for a total of Rs 1 crore (Rs 5 lakh as a base/regular sum insured + Rs 95 lakh as top-up plan), the annual premium will cost him around Rs 10,000. “However, if the same person buys a regular health insurance policy with a high base sum insured of Rs 1 crore, then the premium will cost him around Rs 23,000 on an average,” he said.

Health insurance plan with higher sum insured vs health insurance with a top-up plan

Particulars Higher sum insured plans Regular policy with top-up plans
Premium payments Expensive policy as premium is higher compared to health insurance with top-up plans Cost-effective policy as premium is lower compared to health plans with high sum insured
Claims payout The claim process is easy and cashless The process is easy but may or may not be cashless every time
Deductibles Normally, a low deductible is payable if any A high deductible has to be paid before the top-up benefit kicks in
Policy porting to another insurer Porting is an easy process Porting the total sum insured (base policy plus top-up amount) can be a difficult process

What policyholders should do
You can opt for a health insurance policy with higher sum insured but that will increase your annual premium. On the other hand, you may go for a base/regular health insurance policy with adequate sum insured that can suit your pocket (in terms of annual premium payment) and additionally opt for a top-up plan with deductible amount equal to the base/regular health insurance policy.

Goyal said, “Typically, the deductible can go high for top-up plans. So, let say a customer bought a base/regular policy with sum insured of Rs 5 lakh and a top up policy of Rs 95 lakh. Then typically the deductible in the top up policy can be Rs 5 lakh. Then, in case of a claim which is up to Rs 5 lakh, the base policy sum insured will get reimbursed. In case the claim is higher, say Rs 20 lakh, then the base policy will be used plus the top up policy will kick in.”

The way it works is that the Rs 5 lakh reimbursed by the base policy is used to pay the Rs 5 lakh deductible from the top up policy so that the insured is able to get a total reimbursement of Rs 15 lakh which is base policy (Rs 5 lakh) plus Rs 15 lakh from top up policy minus Rs 5 lakh deductible from the top up policy. The deductible amount from the top up policy has to be paid by the insured before he can get any reimbursement under it.

Say a customer buys a base/regular policy with sum insured of Rs 5 lakh and opts for a deductible amount of Rs 6 lakh in case of the top policy of Rs 95 lakh. Then, to claim under the top up plan (after exhausting the base policy) he would first have to pay the deductible of Rs 6 lakh. The policyholder can use Rs 5 lakh received from the base policy plus Rs 1 lakh from his own funds to pay the deductible. Consequently, he would have to shell out Rs 1 lakh from his own pocket.

“Therefore, it is advisable to have a base health plan with a sufficient cover and then mention the base health plan sum insured as the deductible amount in the top up plan. This way your base/regular health insurance policy would cover normal medical costs and if the treatment cost crosses the base plan sum insured limits, you can then utilise the top-up plan,” Goyal added.

Apart from this, in order to avail the benefit of top-up plans hassle-free, it is also important to buy a top-up plan from the same insurer from whom you bought the base/regular health insurance policy.

Chhabra said, “If you buy a top-up plan from a different insurer, the claim payout from your top-up plan may not be cashless. Moreover, at the time of porting, continuity benefit is only received on the base policy sum insured and not the top-up plan. Therefore, before choosing any one of the insurance plans for porting, it is important to properly understand all the terms and conditions of the plan.”





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