How do I combine base and super top-up health insurance policies?

A reader suggested we write an article about combining base and super top-up health insurance policies — a discussion.

First, let us point out some helpful resources for those looking to understand more about health insurance and how to buy one:

We shall begin by appreciating that insurance is a game of probability. Why are super top-up (STU) policies less expensive than normal (or base) health insurance policies?

STU policies come with a deductible clause. They will not pay out if the expenses are less than or equal to the deductible amount. Suppose the STU policy had a deductible of Rs. 3 lakhs and a coverage of Rs. 5 lakhs.

For an expense of Rs. 6 lakhs,

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If you claimed Rs. 5 lakhs from a base policy, the STU would pay Rs. 1 lakh
If you claimed Rs. 3 lakhs from a base policy, the STU would pay Rs. 3 lakhs
if you did not have a normal policy, the top-up would pay Rs. 3 lakhs. For more examples, see the FAQ article linked above.

The higher the deductible, the lower the price (for the same amount of coverage). This is because the probability of a Rs. 5 lakh expense is much lower than that of an Rs. 1 lakh expense. Expenses here mean hospitalization expenses for the insured and potential payout or loss for the insurer.

So, an STU policy with a Rs. 1 lakh deductible and Rs. 10 lakh cover will cost more than one with a Rs. 5 lakh deductible and Rs. 10 lakh cover.

Another key aspect of STUs should be understood before considering base + super top-up combinations.

If the base and super top-up policies are from different insurers, we must pay the hospital bill and then claim from the top-up insurer. So there is little use in saying I have Rs. 1 crore super top-up unless you have that much in cash (liquid net worth)!
Even if both policies are from the same insurer, the chance of reimbursement is high if the insurer has some doubt about the expense list furnished by the hospital. Of course, the sales guys would say they would “assist” during claims, but that is more of a sales pitch. You cannot bank on that.

Therefore, ideally, the higher the base insurance, the lower the chance of using the super-top policy. However, if you keep increasing the base insurance coverage, it will become more and more expensive as we age.

How to combine base and super top-up health insurance policies

Health insurance purchase (unlike term insurance) is all about how deep your pockets are.
There is no right or wrong base + top-up combo. We have to make peace with what we can afford.
A combination like Rs 5L base + super top-up (Rs. 5L deductible, 50 L cover) or Rs 10L base + super top-up (Rs. 10L deductible, 100 L cover) should be fine.
If you can afford it (now and in future!), buy a large base cover (e.g. 25L family floater or individual) with a super top-up of Rs. 1 Crore coverage (family floater) and a deductible of Rs. 10 lakhs from the same insurer (if possible). This will reduce the dependence on the super top-up policy (which is, anyway, quite inexpensive). At the time of writing, this seems like a robust combination. Medical inflation will hike these numbers a few years later.
Most important: Try to invest a little extra for your financial goals. That extra can serve as an emergency medical corpus. See: Why we all need a corpus for medical expenses and how to build it.

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