Health insurance is actually the most important insurance of all, even though it would probably rank below vehicle and life insurance in the priority order of most people. A health insurance policy (also called a “mediclaim” policy) provides a vital protection against any unforeseen medical expenses that may strike you. And going by the skyrocketing medical costs these days, this is one decision that should not be postponed.
And unlike a life insurance policy which, while equally important, secures your family from the financial impact of your death, a health policy serves you and your family during your lifetime.
Why health insurance?
First and foremost, what does health insurance do? It basically covers the costs of any medical procedures that require hospitalization for at least 24 hours. The costs of such procedures can easily run into several lakhs of rupees these days. Even assuming that you have the money to pay for treatment, arranging such a lot of money at short notice will definitely be a major hassle for your family members. And if you don’t have the money, the situation gets worse – you may need to resort to borrowing at expensive rates or selling your assets to repay the bills. By taking care of your medical bills in such cases, a health policy spares you any sudden and unexpected financial shocks.
Who needs health insurance?
Unlike a life insurance cover, which is necessary only for the earning member(s) in a family (since a non-earning family member’s demise does not affect the family financially), a health cover is required for all members of a family. This is because, regardless of who requires medical treatment, the expenses are borne by the entire family, and so the entire family needs to be indemnified against any such medical shocks.
You should therefore buy insurance to cover all members of your family who are not insured, such as your spouse, children and parents (if they don’t have their own insurance cover).
What if I am already covered by my employer through a corporate/group mediclaim policy?
This is a common source of confusion. If your job already covers you through a corporate (group) medical insurance policy, do you still need to buy another health insurance policy for your family?
The answer to this depends on several factors: your age, the insurance cover provided (limit up to which expenses are covered) and whether it covers your family members as well (including parents).
- If you are in your twenties, you probably don’t need an additional health cover. But once you enter your thirties, you should think about getting your own policy.
- If the total insurance cover provided is too low (less than say Rs. 3 lakhs) then you probably need more insurance.
- If your family members are not covered under your corporate policy, and don’t have their own insurance cover either, then you probably need to purchase another policy that covers you and them.
As for the age factor, remember that your office will only cover you as long as you work for them and not for your entire life. Once you retire or quit, you lose your corporate cover. And if you are beyond a certain age (late 30s or early 40s) in such a scenario, health insurers will be far more circumspect in granting policies, and may insist on health tests or reject you altogether. And even if they do accept, the premiums will certainly be higher at that stage. Keeping this in mind, it would be wise to invest in a personal health policy once you are in your early thirties.
Personal vs. family floater insurance
A personal health insurance policy only covers your medical expenses, while a family floater allows you to insure your entire family under a single policy with the insurance cover amount being available to all. This is cheaper than covering every family member under a separate policy. A personal policy is suitable for single people whose parents are already insured, but a family floater policy would be more appropriate for married people with or without children.
So if you have a family floater mediclaim policy with a Rs. 5 lakh cover, and you undergo a medical procedure costing Rs. 2 lakhs, the balance of Rs. 3 lakhs is still available for you or any of your covered family members to avail in case of any additional medical emergency. And from the next year, the full cover amount of Rs. 5 lakhs is restored.
Factors to consider while choosing a health insurance policy
The following factors must be considered while buying a health insurance policy:
1) Claim settlement ratio of the insurer: A low settlement ratio (ratio of approved claims to total claims) indicates that many claims are being rejected. Also important is the time taken to settle claims. A high percentage of claims pending over 6 months indicates a slow settlement process. Avoid such insurers.
2) Cashless hospitalisation coverage: It is important to know how many hospitals are covered under “cashless” treatment option by the insurer. A large network of such hospitals provides flexibility in choosing the time, place and budget of your treatment, in addition to providing the convenience of cashless hospitalisation, where the hospital collects the medical expenses directly from your insurer (as opposed to you paying and then getting it reimbursed from the insurer, which is what would happen if you went to a hospital not in the insurer’s cashless network).
3) Disease-wise sub-limits or caps: Some insurance policies put sub-limits on specific treatments, i.e. even if your policy has a cover of Rs. 5 lakhs, you may not be reimbursed more than say Rs. 1 lakh for a particular procedure. Other policies put caps on the hospital room rent, say at 1% of the sum insured per day. So for a policy of Rs. 5 lakhs, you would only get a maximum reimbursement of Rs. 5,000 per day towards room rent. This may mean that you would have to settle for a semi-private or general ward room in a premium hospital. Not to mention that in most hospitals, the surgery or other treatment expenses also depend on the room chosen. The same surgery would cost more for a patient staying in a private room than for a patient in a semi-private room. These additional expenses also will not be paid by the insurer, apart from the excess room rent above the limit.
Do read the policy terms and conditions carefully and look for such conditions and restrictions before buying.
4) Co-pay requirement: A co-pay requirement means that a percentage of the treatment costs must be borne by you, while the insurer will pay the rest. In case of a 20% co-pay, you will have to pay 20% of the total expenses while the insurer will pay the balance 80%.
5) Maximum age of cover: Some medical policies cover you only up to a certain age, which has the potential of leaving you without any insurance cover in the sunset years of your life, when you need it the most!
Do check the maximum age till which renewals are allowed under the policy. The good news is that these days, whole life insurance policies are becoming common.
What should be the health cover limit (sum insured)?
This is tricky, again. It depends on your place of residence, your financial profile and the number of family members you intend to cover. If you are living in a metro or Tier-1 city, medical expenses are bound to be higher. Likewise, if your financial position is good, you are likely to spend more on a hospital with better facilities than just going for bare bones treatment. In such cases, you may need a higher sum insured.
A good thumb rule is that for a family of 3 or 4, a sum insured of 50% of your gross annual salary would be adequate (up to a limit of Rs. 15 or 20 lakhs, of course).