It is frustrating to see individuals having difficulty in choosing insurance policies – be it life, health or accident insurance. Their minds are cluttered with so many product features (some necessary and others not so) that they keep delaying the purchase.
Here is a step-by-step guide to purchasing a health insurance policy. I am no expert on the subject. I am writing this partly from experience (3 claims + handling multiple hospitalizations) and partly from online information accrued over the last few years.
I wrote a version of this post some months back, but did not feel enthused to post. After Jignesh Acharya suggested I write about this in, facebook Asan Ideas for Wealth (AIFW), I would like to give it another shot.
First let us decide on the type of product.
Floater or individual plans?
Choose individual plans for all members if you can afford it. Each persons risk profile is different and there could be multiple hospitalizations in a year. Most insurers fix the premium based on the oldest person in the group. Steer clear of this and get individual plans.
For senior citizens individual plan is mandatory. Get the same for younger members if you can afford it, after all there are tax benefits!
Now let us ask,
What are the essential features of an ideal health insurance policy?
1) No sub-limits on room rent and ICU.
Sub-limits can be a pain if the room rent is quite steep (typically in North India and not in South India as learnt at AIFW). If the room rent even for a non-AC single room is quite high (a relative notion), having no sub-limits is crucial.
Everything in life is a trade-off. No sub-limits implies a higher premium.
If the room-rents are nominal (several hospitals in Chennai), I would recommend a policy with sub-limits, typically sold by PSU companies – United India, New India and Oriental Insurance Cos.
Get a policy for a sum insured as high as possible initially, and be sure to increase the sum insured as much as possible each year upon renewal. I have been doing this for the past 9 years. I have individual cover for self, wife, son and mother from United India.
2) No increase in premium if a claim is made (aka loading).
Thankfully IRDA has mandated that there should be no claim-based loading. See page 83 (last line) here (Nikhil Verma shared this at AIFW)
“The loading on renewals shall be in terms of increase or decrease of premiums offered for the entire portfolio and shall not be based on any individual claim experience”.
According to Nikhil, portfolio here refers to the entire client base. Two individuals of the same age cannot have different premiums based on their claim experience.
Trade off: Higher premium from the start!
Please cite the IRDA ruling and confirm with the insurer, NOT the agent.
Nikhil Verma shared the following policy wordings of L&T insurance“Based on the experience of the Product, Premium, Terms and Conditions may be revised subject to prior approval of Insurance Regulatory and Development Authority. Such revision shall be intimated to you 3 months in advance with an option of renewal under any similar Policy being issued by us. However, benefits payable shall be subject to the terms contained in such other
Policy. Individual Claims experience loading is not applicable under the Policy.”
ICICI Lombard also has a similar policy as confirmed by Nikhil.
3) No Co-payment
The insurer should not shift part of the claim expenses to the policy holder by pre-arrangement. Since no co-payment implies higher premium, it might be okay to accept co-payment in the case of very senior citizens.
4) Minimum exclusion period for pre-existing diseases
The minimum tenure that I have heard of is 2 years. The maximum is 4 years.
This is important for everyone, even those who do not have any diseases at the start of the policy. If a disease is diagnosed say, after 6 policy years, the additional sum insured (if any) will be eligible only after the exclusion period.
Trade off: again price!
5) Lifelong renewability
IRDA has mandated that all insurers should provide lifelong renewability (see pages 78 bottom para and page 79 first para in the above attachment)
So this is not an issue. Best to confirm with the insurer though.
6) Minimal Exclusions
Again obvious but difficult to compare one insurer with another. Read the exclusions list after making a short-list and check if any hereditary or existing condition is excluded.
Trade off: probably again price.
In my opinion, if a policy is satisfactory in the above six areas, it will make my short-list.
Now that we have covered the core of the policy, let us look at the window dressing.
Insurers reward policy holders if no claim arises by either offering a discount on the premium or by increasing the sum insured.
If the sum insured increases each year by 5% for every claim free year, it will also decreases by the same amount when a
claim is made. See page 80 of above attachment. Please confirm with the the insurer.
The premium will typically increase up to 50% of the sum insured and no further.
For each claim-free year, there is a discount in the premium when the policy is renewed.
Which is better?
I prefer the no-claim discount. It is simpler. I have seen many people who do not increase the sum insured each year and rely only on the bonus from claim-free years.
It does not matter which you choose as long as you increase the sum insured by as much as possible each year.
What about the restore benefit that an insurer offers?
Read the fine print and write down a typical situation in which the restore benefit will be useful. If you think it is useful, shell out the extra premium. I don’t think much of it though.
Never buy a policy because pregnancy is covered. Dumb! Pay for happy (God willing) non-recurring visits to the hospital. Remember the tradeoff mentioned above.
Out-patient Cover, Dental Cover, Spectacles and other goodies
Read the fine print. Are you willing to change doctors that you knew for ages just to get this benefit?
So now how do we shortlist policies?
1. Check out hospitals near your neighbourhood for room rent rates and if they accept cashless. This will help you decide whether you need a policy with no sub-limits or not. Whether they accept cashless or not, start mobilizing funds for a medical emergency corpus. Never forget that cashless is a privilege that need not be granted.
2. Decide on your budget and on whether you are going to choose a floater policy or individual policy. You can use the premium calculator of any insurer to get an idea.
3. Sub-limits and budget should help filter out many policies.
4. Choose your poison. I prefer PSUs. No logic behind that. Just a deep-rooted mis-trust of privates, regulator or no regulator.
If you like privates, find out who owns the company and how old they are. I suggest choosing a player who is at least 10 years old.
5. A few years back policy comparison portals were user-friendly. Nowadays they are annoying to use and some do not list certain policies. Better to stay away.
6. How about buying via an intermediary like medimanage? If I want to buy fruit, I would like to pick and choose the fruits I need. I will not leave the choice to the fruit-seller.
What about their help during claim processing?
Overrated. Rules are simple and laid out clearly. If I don’t or won’t read rules, I don’t deserve insurance.
7. Once you single out 2-3 insurers, read their policy documents and compare features to single out your future insurer.
8. Now you will need to take a call. Insurance buying is all about taking a risk. It is however a much lower risk than not having any insurance. You need confidence to choose an insurer.
9. Never ask others about their claim experience or ask which is the best policy to buy. That is a one-way ticket to despair.
All this should be done over one weekend, within about 2-3 hours. The longer it takes, the more confusing it becomes.
This is one of my favorite Van Gogh painting. Not relevant to the post but I have been itching to include this for a very long time!