Medical Insurance TopUp Smarter Way to

Insure
Banyan Financial Advisors
www.banyanfa.com

If you are a salaried

employee, it is likely
thatyour employer
wouldhave provided you a
medi claim benefit, i.e. a
group medical insurance
policy to take care of any
hospitalization expenses up
to a specific amount.
Depending upon an
employer, this could be any
where from Rs. 1 lacs to 5
lacs covering medical
expenses for your family.

With rising medical costs, this amount is grossly insufficient. If

one is hit by a critical illness, it would take the medical bills
very quickly over a 10 lacrupees. An article published in
Financial Expressgave some estimates of the medical costs for
a few major illness and it does not include incidental costs such
as ICU charges :
1. Herceptin, one of the most effective drug for breast cancer,
costs around Rs 75,000- Rs 1 lakh for a 440-milligram vial.
Cancer patients need around 6 to 17 vials for reasonable
treatment. You can quickly see the total rising up to around
Rs. 17 lacs just for the drug cost.
2. One cycle of Avastin which is used for treating lung and
breast cancer costs in excess of Rs 25,500, and each
course requires between 5 and 10 cycles of injection.
3. Glivec which is used in the treatment of multiple cancers,
costs Rs 1.25 lakh for a months dose.
4. Treating diseases of the cardiovascular system typically
costs in excess of Rs 2-3 lakh in a city like Mumbai.
5. An angioplasty can costs around Rs 1.5 lakh to Rs2.5 lakh,

In summary, your existing medical insurance policy may be

left helpless to fight against ever increasing medical bills
and hence you should be geared to get your medical cover
enhanced to cater to the unforeseen medical costs in
future. This article will not go into the details of what a
medical insurance policy is, as this is already covered in
detail by our articleMedical Insurance - Health is Wealth.
Withthis article, we aim to highlight an innovative way to
boost your current medical insurance coverage using a topup insurance.

Top up Insurance
You may be familiar with the term insurance excess or
deductables which is generally built into most of the insurance
policies. Essentially it mentions the first 'x' amount which an
insurance provider will not reimburse and hence would be borne
by the policy holder. For example, if you have a medical
insurance policy, it may mention about an excess of Rs. 5000.
This means on your hospital bill of Rs. 50K, the insurance
company will not pay you Rs. 5K and balance of Rs. 45K will be
reimbursable.

Top up insurance works on the same principle and extends it

further by providinga user an option to take a high voluntary
excess (also called as deductable) of say Rs. 1 lac, 2 lac, 3 lacs
and so on. The higher the voluntary deductable taken by the
user, the cheaper will be theinsurance policy. A person taking a
top-up insurance policy is essentially taking an insurance to top

The Arithmetic
If you take a few quotes on Medical insurance policies, you
willhave notice that it is more expensive per lac to obtain a
medical insurance policy for a lower denomination policy, e.g.
upto Rs 1-2 lacs of cover. As the cover increases, the per lac cost
decreases or at best remains constant. The logic behind this is
it is more likely for a person to have a medical bill of upto 1-2 lacs
than a 10 lacs bill.
The positive side of this picture is, many of the employers would
be providing a group medical insurance plan to their employees
which covers immediate family of an employee (spouse and
children. Parents are generallynot covered). This is a very
welcomed perk provided to employees as it covers basic medical
costs for the entire family of an employee. In many cases, self
employed people also have a basic medical insurance.
The pertinent question to ask is what if the medical bills go
beyond the existing medical insurance policy ? If you dont have
an insurance policy to cover you for this expense, the bills would
have to be borne by you. Alternatively, you have an option to top
up your existing medical insurance policy to cover for enhanced

How does Top-Up Feature Work

Lets take an example to make it easier to understand. Lets
assume that Joe has an existing medical insurance policy which
covers his family for upto Rs. 3 lacs of medical costs. Joe faces an
unforeseen medical condition and is hospitalised.
There are three scenarios which he could face financially where
the medical expenses could be within his existing medical
insurance policy or be much higher than his policy.

We would now be expanding more on Case C, where the top up

insurance policy came to Joes rescue to shoulder extra medical bill
beyond the initial Rs. 3 lacs medical bills.
Joe had taken a top-Up insurance policy which would cover any medical
expense beyond Rs. 3 lacs expense.
Here, the first 3 lacs would be borne by any other mechanism other
than by the topup insurance policy. Most likely, one would have an
existing medical insurance policy to cover the initial amount of medical
expense and balance to be borne by the top-up policy.

Key Features of Top-Up Insurance Policy

1. Deductable Amount
This is the most important feature of a top-up insurance policy. It will not
cover upto the amount of deductable / excess mentioned in the policy.
The higher the deductable, the cheaper the policy is. For example, if
Joes medical insurance policy had a deductable of Rs. 5 lacs, upto Rs. 5
lacs the top up policy would not re-imburse. Beyond 5 lacs, the top up
policy will cover upto the sum assured.

2. Not Linked to A Specific Policy

The best thing about a top-up policy is that it is not linked to any
specific insurance policy or in that matter any insurance policy. All what
it says, the first 'x' amount will not be borne by the top-up insurance
policy. This amount of deduction can be borne by the policy holder or by
any other insurance policy. Hence, a person has the flexibility to choose
any insurance company for meeting the requirement for the basic few
lacs of insurance requirements.

3. Protecting No-Claim Bonus

If you have an existing insurance policy, most of your ailments would be
covered using its coverage without touching your top-up insurance
policy. A positive effect is that your top-up insurance policy would be
able to accumulate no-claim bonuses (if this is a part of your policy
feature).
4. Initial 1-2 lacs deductable Most Cost Effective
Thefirst 1-2 lacs of deductables will make a disproportionate impact on
reducing your insurance policy. The reason is simple it is more likely
for a person to make a claim on a medical insurance policy with no or
low deductable. We would suggest having a deductable atleast equal to
your existing medical insurance policy.

5. Deductable through the year vs per ailment.

This is a very important clause to look out for in your insurance policy. A
perfect policy will consider all hospitalisation costs incurred within a
policy year towards the initial deductable amount. A less desirable
policy term would be where the deductable amount is per
hospitalisation. For example, if Joes top-up insurance policy has a
deduction of Rs. 5 lacs and he incurs hospitalisation bills of Rs. 1 lac in
Jan, Rs. 4 lacs in June and Rs. 10 lacs in Nov, totaling to Rs. 15 lacs.
The policy should consider the medical costs incurred throught the year
towards initial deduction, i.e. 1 lac in Jan and 4 lacs in June are allowed
to be considered and Rs. 10 lacs are entirely borne by the top up policy
as Rs. 5 lacs expenses in the year have already been borne by the
policy holder / other insurance policy. In a less desirable policy, Rs. 1
and 4 lacs bill will not be paid as they are less than 5 lacs. It will also not
pay Rs. 10 lacs bill in full as it will deduct Rs. 5 lacs deductable from the
individual bill.

6. Tax Rebate 80D

This should not be the driving factor behind your decision to take a topup medical insurance plan, but is just a cherry on the top of the cake.
Current tax year comes with enhanced exemption towards medical
insurance for individuals under section 80D :
Individuals upto Rs. 25,000
Medical insurance for parents additional Rs.30,000
This benefit tends to be under utilised as most of the people do not end
up taking medical insurance after having the basic insurance being
provided by their employers. If you take top-up insurance, you can avail
tax rebate on the insurance premium based upon your tax slab. So if
you are a 30% tax payer, you can avail 30% tax rebate on the insurance
premium paid by you.
We hope you would be able to get an understanding of this interesting
financial product which allows you to enhance your medical insurance
coverage with minimal drain on your purse. For further assistance,


Also published at
http://insight.banyanfa.com/medical-insurance-top-up-smar
ter-way-to-insure/

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