Your car breaks down in the middle of nowhere. It’s dark and isolated; you try to turn on the engine but it keeps failing. Right when you’re on the verge of a panic attack, something happens. Yes, you spot a bleak light at the horizon. You see a car coming towards you. What a relief! Such a gratifying feeling a helping hand emerging out of nowhere can bring, but it isn’t hard to imagine, is it?
Well, this is the exact kind of feeling top-up health insurance can bring you. This article will look at top-up health insurance plans, how they work, their features, and their benefits.
Long-Term Health Insurance Plans
Health insurance is an annual contract renewed every year. It’s common knowledge that your progressing age doesn’t ensure progressive health, in fact, your health is on a downward curve. So, as you grow older, the insurer assigns a higher risk to insuring you. This is why health insurance premiums increase with age.
Usually, insurance premiums are calculated per age bands: 30-35, 35-40, 40-45, and so on (these bands differ from one insurance provider to another). At your end, you will see a good jump in premium prices as soon as you hit one of these age bands. It will then remain around the same (depending on how many claims you have made) until you hit the next age band and so forth.
In effect, as you grow older and closer to retirement (a state with more likely health concerns and no income), you will have to pay higher and higher health insurance premiums. You might also consider more health coverage. For instance, you might feel that your base ₹5 lakh policy may not be enough for your going forward. At this point, you have a few options, all of them likely to be expensive:
- You could increase the coverage on your health insurance policy, which is expensive.
- You could buy another health policy, which you will be able to use once your first policy is exhausted – another expensive option.
- You could opt for a health policy with a deductible, i.e., the policy starts coverage above a certain threshold, up to which point you have to bear the expenses. This is a far less expensive option than 1 and 2.
However, the cheapest option would be a top-up health insurance plan. It allows you to design a viable long-term insurance plan at a reasonable cost.
What is top-up health insurance?
Top-up health insurance plans provide health coverage beyond the limit prescribed by your existing health plan or the base plan. Let’s look at an example (the figures mentioned here are only to illustrate the idea): You have a base health plan of ₹5 lakh and take top-up health insurance of ₹3 lakh at a threshold of ₹5 lakh.
This means if you were hospitalized, your base plan would allow you to claim your expenses up to the prescribed ₹5 lakh. If your expenses were to go above this limit, your top-up health plan would now kick in up to the prescribed ₹3 lakh limit for the claim. It would do so because the ₹5 lakh threshold was crossed. This is how a top-up plan works. However, there are certain factors you must understand, which will be discussed below.
Importance of Top-Up Health Insurance Plans
The top-up insurance plan can be a key bearer of increasing medical costs as you grow older. Even otherwise, you can reduce your insurance premiums significantly if you were to opt for a combination of the base plan and top-up plan. A top-up, with good coverage with your existing health plan’s cover as the threshold, offsets you against any additional surprises in terms of treatment or expenses. This becomes more important as you are growing older when it becomes more and more likely that you will need the extra coverage for any health issues associated with advancing age.
Types of Top-Up Health Insurance Plans
There are two kinds of top-up plans: top-up and super top-up.
Top-Up Health Insurance Plan
The top-up plan kicks in with coverage once your base plan’s coverage has been exhausted. Every top-up plan has a threshold, the point at which it starts coverage. One thing the customer gets confused about this option is how the top-up coverage works.
The top-up plan can be availed of for claims for incidents of single hospitalization only. For example, you buy a ₹5 lakh base plan and a ₹5 lakh top-up cover with a threshold of ₹5 lakh on 1 April 2021. On 5 June 2021, you need to be hospitalized, and your hospital expenses total ₹6 lakhs. Your base policy will cover the first ₹5 lakhs, while the top-up will cover the remaining 1 lakh.
Key Point: If you were to get hospitalized again in that same one-year time period and the cost is, say ₹4 lakhs, the top-up cannot be triggered to cover this 4-lakh expense since your claim is less than the threshold for the top-up to be prompted. Since you have already exhausted the ₹5 lakh cover of your base plan during your first hospitalization, you will now have to pay the entire ₹4 lakhs out of your own pocket.
Incidents of Single Hospitalization: For the purposes of top-up plans, insurers usually define incidents of single hospitalization in terms of time periods. Typically, if your condition relapses within 45 days and you need to be hospitalized again, the insurer considers the hospitalization as the same single instance and not two separate ones. In such cases, the top-up will cover your expenses for that second hospitalization, provided your claim triggers the threshold, i.e., above ₹5 lakh.
Super Top-Up Health Insurance
This works the same as the top-up plan, but without the condition of single hospitalization incidence. This means that each claim does need not trigger the threshold; it is sufficient even if the sum of your claims surpasses the threshold.
Considering the same situation as we discussed in the Top-Up Plan — your first hospitalization cost of ₹6 lakhs was completely covered between your base plan and the super top-up in April 2021. However, in November 2021, you need hospitalization again, where the expenses are about ₹1.5 lakhs.
Your super top-up plan, unlike the regular top-up plan, will now cover this expense as well, since the sum of your claims is over the threshold (₹6 lakhs + ₹1.5 lakhs = 7.5 lakhs > the ₹5 lakhs). If you had yet another medical expense of ₹75,000 in January 2022, that would be covered too. And so on, until the ₹5 lakh super top-up cover is exhausted for the 1 April 2021 – 31 March 2022 time period. Thereafter, you’ll have to renew your base plan, and super top-up for April 2022 – March 2023, and your cover is back to the ₹5 lakhs plus ₹5 lakhs.
Facts About Top-Up Health Insurance Plans
- The higher threshold you opt for, the cheaper will be your top-up premium. This is because the top-up (or super top-up) exists as a separate plan, which has a lesser calculated risk due to the threshold. The top-up gets triggered only if the threshold is met. In most cases, the base policy is enough to cover medical expenses.
- Top-up plans are claims-per-each-hospitalization plans, where each claim has to go over the threshold. Super top-ups get triggered if the aggregate of all claims for the policy period goes over the threshold.
- Top-ups (or super top-ups) are not extra benefit providers (hospital cash, out-patient expense cover, etc.). They act exactly as base health insurance plans and provide the same benefits.
- Carefully chosen top-up plans provide the most cost-effective health cover.
Eligibility Criteria
Top-ups in top-up health insurance policies can be taken against any existing medical policy, including group health insurance cover. For instance, you have a ₹3 lakh cover via group insurance at the firm you work at. You can buy a top-up plan from any health insurer with a ₹3 lakh deductible. If your medical expenses go beyond the ₹3 lakh cover from your group insurance, your top-up will cover it if your claim goes above that ₹3 lakh threshold.
You can also have a top-up cover without a base plan. Here’s how it works:
You decide to go without a base plan and only take a ₹10 lakh top-up plan with, say a ₹3 lakh threshold. This would mean that for the first ₹3 lakhs of expenses for your hospitalization, you will pay yourself. Any expenses going above that threshold will be covered by your top-up plan. Say your hospitalization expenses come to ₹6 lakhs. You pay ₹3 lakhs out of your pocket, while the other ₹3 lakhs will be covered by your top-up plan.
Deductible of Top-Up Health Insurance Policy
The threshold referred to in earlier sections is called the deductible. This is the most important aspect of a top-up health insurance policy, one that gets consumers confused.
As explained earlier, the top-up cover gets triggered once the deductible is reached. A ₹5 lakh top-up plan with a ₹5 lakh deductible will come into effect only if the claim is more than ₹5 lakh. What does this mean? Let’s look at an illustration, where all the claims are within the insurance contract period of one year (Please note that these figures are only to illustrate how the top-up policy works):
| Claim Number and Amount | Person A: ₹5 Lakh Base Policy + ₹5 Lakh Top-Up with ₹5 Lakh Deductible | Explanation |
|---|---|---|
| The first claim, 3 lakhs | Completely covered by the base policy | ₹2 lakh of base policy cover remains after claim 1. |
| The second claim, 1 lakh | Completely covered by the base policy | ₹1 lakh of base policy cover remains after claim 2. |
| The third claim, 4 lakhs | ₹1 lakh covered by the base policy; remainder needs to be paid out of pocket | Base cover exhausted; no top-up cover triggered since the claim is less than the deductible needed to activate the top-up cover. |
| The fourth claim, 6 lakhs | Person a gets ₹1 lakh of the top-up cover; ₹5 lakh to be paid from pocket | The claim amount is activated since it is over the ₹5 lakh deductible; the excess of the deductible, i.e., total claim minus the deductible (6 lakh minus 5 lakh) of ₹1 lakh is paid. |
This table should make it clear to you that top-up health insurance plans are first and foremost claim-based, not cover-based. The usual query from a customer would be “I had exhausted my base cover in my first claim and I thought my top-up would cover my next claim since I had enough top-up cover.” The answer to that query is that it is not the cover that is considered to trigger the top-up coverage; it is the claim amount. Each claim amount has to cross the deductible limit for the top-up cover to be triggered. And then the top-up covers the difference between the claim amount and the deductible.
Now, let’s look at a person B with the same base cover who has ₹10 lakhs of super top-up cover and a ₹5 lakh deductible. We will keep the number of claims and their values the same.
| Claim Number and Amount | Person B: ₹5 Lakh Base Policy + ₹10 Lakh Super Top-Up | Explanation |
|---|---|---|
| The first claim, 3 lakhs | Completely covered by the base policy | ₹2 lakh of base policy cover remains after claim 1. |
| The second claim, 1 lakh | Completely covered by the base policy | ₹1 lakh of base policy cover remains after claim 2. |
| The third claim, 4 lakhs | ₹1 lakh covered by the base policy; remainder ₹3 lakh covered by super top-up | Base policy cover is exhausted; the super top-up covers the remainder because the sum of the three claims to date goes beyond the ₹5 lakh deductible. |
| The fourth claim, 6 lakhs | Super top-policy covers the entire ₹6 lakhs | Super top-up covers the entire claim because the aggregate of all four claims till now goes beyond the ₹5 lakh deductible; ₹1 lakh super top-up cover remains. |
Premium and Sum Insured
The sum insured is the total coverage you opt for. If you have a ₹5 lakh base policy, that ₹5 lakh is the sum insured. It is the same with the top-up as well. The total cover of the top-up will be its sum insured.
The premium for your insurance cover is calculated based on key parameters that include age, sex, your current health, history of certain diseases in the family (such as diabetes, heart disease, hypertension, etc.). Hence if you and your friend (of different ages) take the same base policy and top-up plan, you might see a difference in the premiums payable.
Pre-Policy Medical Test
Health insurers typically insist on pre-policy medical tests under certain circumstances. Usually, if you are over 45 years old, you will need to undergo a detailed medical test before the insurer agrees to cover you. There are two reasons for this – one, the insurer can check if you have answered all the questions about your health truthfully. Two, the insurer has a firm basis of your health based on which they can now calculate the premium you will need to pay.
Insurers also insist on pre-policy medical tests if your coverage is above a certain figure, typically ₹10 lakhs. They want to check if it is worth the risk to insure you for such a large amount.
Tips About Top-Up Health Insurance Plan
- Buy a top-up health insurance plan instead of extending the coverage of your base plan or buying a whole new base plan. You get the same benefits at significant cost savings.
- You can top up your health cover even if you have a family floater plan.
- Top-up plans are also covered under Section 80D of the Income Tax Act, which can come in handy come income tax-paying season.
Conclusion
The top-up health insurance plan and particularly the super top-up health insurance plan are versatile instruments of comprehensive medical and health coverage. In this article, we have tried to answer some of the questions that you might have had regarding how different insurance instruments, especially how top-up health insurance policies work. Even armed with all the clarity you need about these plans, please ensure that you discuss your health insurance needs with a trustworthy insurance advisor before you buy any plan. The best insurance advisors will listen to your needs and your financials and then present you with viable options. Alternatively, you can use the various online insurance aggregator platforms to look at and compare various health insurance and top-up plans.
Lastly, do not try to fudge the truth about your current health to your prospective insurer. You might think doing that is worth it if it saves you some money. However, come claiming time, if there are any details that go against what you had disclosed previously, the insurer will cite that as a reason not to honor your claim. They say never lie to your doctor and your lawyer. We suggest you add your insurer to this list.
Get in touch with top-up health insurance experts at Vital now to get the most suitable plan for yourself and your family today.