With cost of healthcare being on a rise, the importance of health insurance or Mediclaim is known to many. But it often happens that, the insurance cover taken by one is sub-optimal. Recognising this, insurance companies today offer 'Top-up Health Insurance Policy', which many individuals evince interest in. But what they fail to understand is how such a plan works in comparison to a Mediclaim Policy. So we thought, why not write and educate you over this in our today's edition of the "Financial News.Simplified". (Also Read: (Also Read: Which is the best Health Insurance plan?))

As you must be aware a Mediclaim policy reimburses your hospitalisation bills in case hospitalisation due to an accident or any illness. Similarly, a Top-up Policy too reimburses your hospitalisation bills in case of hospitalisation due to any accident or any illness.

But here's how the two policies differ and work.

You see, a Top-up Health Insurance Policy reimburses your hospitalisation bills only above a certain amount. This certain amount is known as deductible amount and the insurance company which indemnifies you for the Top-up Policy is not liable to reimburse any amount until the threshold limit (i.e. deductible amount) is crossed. To simply put, in case of Top-up Policy the insurance company pays or indemnifies the risk only above the deductible amount.

To help you understand better, let's take an example:
 

Mr. Sanjay's Health Insurance Cover
Mediclaim Cover			300,000
Top-up Cover			500,000
Deductible			300,000
Scenario 1		Scenario 2		Scenario 3
Claim Amount	200,000	Claim Amount	500,000	Claim Amount	1,000,000
Liability		Liability		Liability
Mediclaim	200,000	Mediclaim	300,000	Mediclaim	300,000
Top-up	-	Top-up	200,000	Top-up	500,000
Self-Contribution	-	Self-Contribution	-	Self-Contribution	200,000

 

In the above case Mr. Sanjay has a Mediclaim cover of Rs 3 lakh and a Top-up Policy of Rs 5 lakh with deductible of Rs 3 lakh. This deductible of Rs 3 lakh means that the Top-up Policy will not have any liability for any claim arising upto 3 lakh irrespective of whether Mediclaim Policy reimburses for his claim or not.

We have further assumed 3 different scenarios to make it clear how Top-up Policy works. So let's explain each scenario one by one.

Scenario 1:

In the 1st scenario we have assumed that Mr. Sanjay is hospitalised and his claim amount is Rs 2 lakh. Now, since the claim amount is less than Rs 3 lakh, which was the deductible amount in Top-up Policy; there is no liability on Top-up Policy to indemnify or pay, irrespective of whether Mediclaim honours the claim or not. In such a scenario Mr. Sanjay is only eligible to claim his amount of Rs 2 lakh from the Mediclaim Policy.

Scenario 2:

In the 2nd scenario we have assumed that Mr. Sanjay is hospitalised and his claim amount is Rs 5 lakh. Now since the claim amount is more than Rs 3 lakh which was the deductible amount in Top-up Policy, the Top-up Policy can indemnify or pay the amount over and above Rs 3 lakh. In such a scenario Mr. Sanjay is eligible to claim Rs 3 lakh from the Mediclaim Policy and Rs 2 lakh from the Top-up Policy. So, by now you must have recognised that Mediclaim liability is limited to the extent of insurance cover of Rs 3 lakh while the Top-up Policy's comes into effect only after claim amount exceeds Rs 3 lakh.

Scenario 3:

In the 3rd scenario we have assumed that Mr. Sanjay is hospitalised and his claim amount is Rs 10 lakh. In such a scenario, Mr. Sanjay is eligible to claim Rs 3 lakh through the Mediclaim Policy and Rs 5 lakh from Top-up Policy, while he has to bear Rs 2 lakh on his own pocket. You see, in this scenario he has to contribute a part of the total amount, as both Mediclaim and Top Up insurance cover limits have been exhausted.

So to conclude...
Remember; before you buy a Top-up Health Policy know the modalities. Don't get into the trap of your insurance agent and buy the policy getting carried away by his luring sale pitch. Ask him the relevant questions and verify what he is saying before doling out a cheque for premium. (Also Read: Which is the best Term plan?)

Please note that in case of Top-up Policy, the premium keeps on decreasing as the amount of deductible is increased. So, its biggest advantage is its lower premium as compared to a Mediclaim Policy. But at the same time, it has the biggest disadvantage that the deductible is applicable each time you have a valid claim.

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Comments
pankajgera2000@gmail.com Jul 15, 2014 There are two types of top up plan - top up which pays when claim exceed due to one illness( claim ) and super top up where policy pays in case of multiple claims. Super top score over top up plans. Recently couple of companies have launched super top plan and now there are four Compamirs to choose from.  Pankaj Gera,  CFA, CFP  MB 9891250443
mchandrashekhar@hotmail.com Jul 15, 2014 Nice article. I have a doubt. I already have Max Bupa Heartbeat Gold policy for Rs 5 lacs covering me & my wife. I want to take a Top up policy for 03 Lacs from another agency. Is it OK ? Do I have to inform both of them about this?
jbshah49@gmail.com Jul 17, 2014 SMALL CORRECTION IN ILLUSTRATIONS In senario 3, Rs. 300000/- will be paid against basic mediclaim policy ; Rs. 200000/-will be paid from top up policy [because first 300000/- is deductible from policy of Rs. 500000/- & co. liability will be of Rs. 200000/- only as per senario 2 ]and balance Rs. 500000/- will be born by insured... As I have understood the fact from my expirience of 16 yrs in the insurance field.... Please be kind enough to rectify the same & oblige..... Jagdish shah Insurance Consultant LIC--UIIC--Star Health--Bajaj allienze--Aviva Life jbshah49@gmail.com +91 22 9819227205

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