The recent Covid-19 crisis has put the adequacy of health insurance to the test for many of us. What seemed like solid health insurance turned out to be inadequate, at least in some cases. The Rs 3 Lacs employer coverage and Rs 5 Lacs private health insurance plan now appear to be utterly inadequate. Not true?

Two questions:

  1. Then what is adequate health insurance?
  2. How do you improve your health insurance coverage? Finally, the additional coverage is chargeable.

The first question is difficult to answer. If you are unlucky, no amount will ever be enough. However, in my opinion, basic coverage of Rs 5 lacs per person on a family floater plan is decent. And that is before bonus payments without entitlement. For a family of 4, a Rs 20 Lacs floater plan should be a good choice.

If you have an individual plan, Rs 10 lacs looks like a good number.

There are 2 ways to do this via increasing coverage.

Extend your existing insurance coverage or buy a super recharge plan.

Here are a few things to keep in mind.

The marginal costs of health insurance are not very high

And you need to use this to your advantage.

I am creating actual data for an insurance policy for a family of 4 (40, 38, 12, 10):

Rs 5 lacs coverage costs ~ 19,000.

Rs 10 Lac coverage costs ~ 24,600. So the next 5 Lacs covers come to just 5,600 more.

Rs 20 Lac coverage costs ~ 31,200.

While health insurance coverage has increased fourfold, the annual premium has less than doubled.

Compare this to term life insurance. If Rs 50 Lacs Term Plan costs your Rs 12,000, Rs 1 crore coverage will cost you ~ Rs 24,000. Thus, the premium increases proportionally to the increase in the sum insured.

Why this difference between risk insurance and health insurance?

The difference lies in the nature of the product.

And since the insurance company prices the product, we also look at this from the perspective of an insurance company.

A term plan is a fixed benefit plan. If the policyholder dies, the insurer must pay the insured amount to the family. And the likelihood that the policyholder will die in an insurance year does not depend on the level of his life insurance coverage.

If you have Rs 50 lacs coverage, pay Rs 50 lacs to the family. If you have coverage of Rs 1 crore, the insurer pays Rs 1 crore. The same insured event forces you to pay double the amount.

From an insurer’s point of view, therefore, if life insurance is priced at Rs 50 lacs to X, the coverage of Rs 1 crore must be rated 2X. Double coverage, double the premium.

Health insurance products are defined benefit plans.

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The insurance company refunded the costs of medical treatment in accordance with the insurance conditions (permissible claim).

Well, the chances of you having a Rs 5 lacs hospital bill are less than a Rs 10 lacs bill.

Therefore, the insurer’s underwriting team can choose to price the additional coverage at a lower rate. Additionally, given the competition, you can expect the marginal cost of insurance to be low.

A super recharge plan can come in handy

You can also supplement your health insurance cover with a super supplementary insurance.

The payment of a super additional insurance is triggered when the claims account exceeds a certain threshold.

Let’s say you purchase a Super Refill Plan of 20 Lacs with a deductible of Rs 5 Lacs. In this case, if the Claim Amount (Eligible Claim) exceeds Rs 5 Lacs, the excess invoice amount will be paid by the insurer under the Super Reload Plan.

So if the invoice amount is Rs 8 lacs. Any excess over Rs 5 lacs (8-5 = 3 lacs) will be paid for by the insurance company.

Now, if you also had a basic plan of Rs 5 lacs, the first Rs 5 lacs will be paid under the basic plan and the remaining Rs 3 lacs will be paid under the super recharge plan.

When I speak of a basic rate in the post, I am referring to health insurance with no deductible. Your employer’s health insurance company or your existing private tariff can be referred to as the basic tariff.

  1. Basic plan of Rs 5 lacs (Pay the first Rs 5 lacs)
  2. Super reload plan of Rs 20 lacs with a deductible of Rs 5 lacs (pays the remaining Rs 3 lacs)

Big Base Plan vs. Small Base Plan + Big Super Charge

You want to buy health insurance from Rs 50 lacs.

You have two options.

  1. Buy a Great Basic Plan from Rs 50 Lacs OR
  2. Buy a basic plan of 5 lacs. Add a super recharge plan of Rs 45 lacs with a deductible of 5 lacs. I call this the 5 + 45 arrangement. This can very well be 10 + 40.

What is cheaper?

Ideally, there shouldn’t be a huge difference in cost as they both offer the same coverage. In reality, however, there is a difference. Base + Super Charge is usually cheaper than a large base plan.

I am producing the data for a base plan and super charge combination below.

Health Insurance Plan Increase Health Insurance Coverage Super Top-Up Plan Super Top-Up Plan Health Insurance Plan Room Rent Sublimit

The combination of the basic plan + supercharging is clearly cheaper.

Why?

First, the baseline plans usually have a no-claims discount. Therefore, your health insurance coverage in the basic plan will usually grow every year without compensation at no additional cost. Let’s say you have a baseline of Rs 10 lacs. The policy has a no-claims discount of 20% of the basic insurance amount with a maximum of 100% of the basic insurance amount.

After the first year without compensation, the sum insured increases from 10 lacs to 12 lacs. If you do not make a claim for 5 years, the basic insurance amount increases to 20 lacs.

No such luxury on super recharge plans. While there are no governmental restrictions on No No Claims Bonuses being granted in Super Charge Plans, I haven’t seen any No Claims Bonus facility in Super Charge Plans that I have seen.

To continue with the example above, the insured amount under the baseline will grow from Rs 50 lacs to Rs 1 crore after 5 years without damage.

Below 5 + 45 the total sum insured after 5 years without entitlement is only 5 + 5 + 45 = Rs 55 lacs.

Secondly, the basic plans usually offer various fringe benefits like a free health check, etc. super recharge plans cannot do this. All of this increases the cost of basic insurance.

In the end, there may be differences in the terms of the basic plan and supercharge plans. And that is very important.

Things to consider

Because of the way Super Refill Plans work, your entitlement (under the Super Refill Plan) may not always be cashless, especially if the Basic Plan and Super Refill Plans are from different insurers. This can be a problem at times.

In addition, your basic health insurance and super recharge plans are two different plans with different terms. And claims settlement can be quite complicated when you have multiple health insurances.

It is possible that a certain medical expense is allowed in the basic plan while it is not allowed in the super supplementation plan.

To continue with the example above, of Rs 8 lacs, say, Rs 7.5 lacs are allowed under the baseline. Since the coverage is only Rs 5 lacs, the basic plan pays Rs 5 lacs.

Under the super-recharge plan, the allowable exposure is now Rs 6.75 lacs (rather than Rs 7.5 lacs). Rs 5 lacs have already been paid from the baseline. Hence, the super recharge plan only pays Rs 1.75 lacs.

Payment out of pocket = 8 – 5 -1.75 = 1.25 lacs

So, go through the policy wording of both plans to get a feel for the expenses covered.

What should i do?

While a super-recharge plan is a cheaper way to add to your health insurance coverage, here are some things to keep in mind.

  1. Payment from a Super Top-Up Plan cannot be made cashless.
  2. Make sure the coverage in the basic plan and super recharge plan is similar. This is to avoid surprises at the time of the complaint.
  3. You still need to have a solid basic health plan in place. I would prefer 10 (basic plan) + 90 (super charge) over 5 + 95.
  4. If you have the resources and want to keep things simple, a great basic plan is also a great choice. We know that the marginal cost of insurance is not very high. It will also be a lot easier to make a claim.





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