On Top of the top-ups

Top-ups rule our lives in many ways — it could be an add-on pack on a prepaid mobile, that spare tyre in the trunk of the car, a second gas cylinder in the kitchen, carrying extra pens to the exam hall, spare batteries for the torch or remote and so on. The list is endless.

Nowhere are top-ups probably more essential than in your health insurance plan. As you grow older, healthcare can become prohibitively expensive and in the event of a debilitating illness, you risk losing your life savings and your peace of mind.

Top-up insurance is a hedge against skyrocketing medical costs, especially unforeseen hospital expenses that spiral out of control. A top-up comes to your rescue when you have exhausted full cover under an existing health policy, either individual or family floater. It recompenses costs incurred from a single illness over and above the limit of your cover.

A top-up is always a better and cheaper option than raising the sum assured under your existing policy or buying a new one. The combined premium for a top-up insurance and a base health insurance plan is normally 30-40 per cent lower than premium of a single plan of equivalent sum insured.

So how does a basic top-up plan work?

Typically, a top-up plan covers hospitalisation costs only after a threshold limit or compulsory deductible amount is reached. For instance, if you buy a top-up of Rs 10 lakh with a threshold limit of Rs 5 lakh, you must incur a minimum expense of Rs 5 lakh and above (of single claim) to be eligible for reimbursement from top-up policy. If you don’t have a basic health insurance policy and incur medical expense of say, Rs 9 lakh, then you have to pay Rs 5 lakhs from your pocket and top-up policy will cover the balance Rs 4 lakh.

Point to remember: A top-up policy does not cover expenses below the threshold or deductible limit. To put it another way, top-up pays for expenses incurred above that level.

Now let’s take a look at super top-up, which is a slight variation of the regular top-up.

This policy comes into effect only when the total medical expense incurred in a year is above the threshold level. Assuming that a policyholder with a super top-up cover of Rs 10 lakh and a threshold limit of Rs 3 lakh is hospitalised twice — with medical expenses amounting to Rs 2 lakh the first time and Rs 2.5 lakh the second time — the super top-up is automatically triggered during the second hospitalisation, as the total expense of Rs 4.5 lakh crosses the threshold limit of Rs 3 lakh.

Point to remember: Super top-up is more beneficial than regular top-up because it pays for total expenses incurred on hospital bills in a year.

But, whether you buy top-up or super top-up insurance, make sure that you read the fine print carefully vis-a-vis the threshold limit or deductible criteria for a single illness, waiting period for pre-existing diseases, limits inclusive of donor expenses, pre- and post-hospitalisation expenses, premium payment, claims procedure and settlement ratio.

Some of the other advantages of top-up insurance are: 

Tax deduction under 80D of the Income Tax Act, same as regular health policies.

Top-ups can be bought from any insurer regardless of whom you purchased your basic health policy from, because top-ups are treated as different plans.

These policies can be paired with individual, family floater and employer’s group health insurance, making it easier for the insured to apply for top-ups.

Higher the threshold or deductible limit, lower the cost or premium of top-up plans.

Top-ups compensate for inflation and high cost of living. 

Top-ups are meant to bridge the gap between your existing policies and potential medical bills, and they allow you to do so at a fraction of the cost of hospitalisation. What’s important is that you can file claims against both your existing health policy as well as top-up plan for expenses incurred during a single hospitalisation. A good top-up insurance plan may seem costly at first, especially if you don’t use it; but if you suddenly need it, then you are going to save more money than you realise.
(The writer is managing director, Mahindra Insurance Brokers)