How to Buy a Health Insurance Policy

Published: February 5, 2016 at 6:35 am

Last Updated on January 9, 2018

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.

Window Dressing

Insurers reward policy holders if no claim arises by either offering a discount on the premium or by increasing the sum insured.

No-claim bonus:

If the sum insured increases each year by 5% for every claim free year, it will also decrease 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.

No-claim discount:

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.

Restore Benefit

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.

Maternity Benefit

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.

Follow-up:  Things to do AFTER you buy a health insurance policy

Other  ‘how to buy’ posts

How to Buy a Term Life Insurance Policy

How to choose a term life insurance provider in 30 minutes!

Things to do AFTER you take a term insurance policy!

~~~~~~~~~~~

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!

Vincent van Gogh - Head of a skeleton with a burning cigarette - Google Art Project.jpg
Vincent van Gogh – Head of a skeleton with a burning cigarette“.

Do share if you found this useful

Use our Robo-advisory Excel Template for a start-to-finish financial plan! Now with a new demo video!  More than 700 investors and advisors use this!
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 2600 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 600 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
My new book for kids: “Chinchu gets a superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both boy and girl version covers of Chinchu gets a superpower.
Most investor problems can be traced to a lack of informed decision making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, if we had to groom one ability in our children that is key not only to money management and investing but for any aspect of life, what would it be? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parent’s plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Did you know? We have more than 1000+ videos on YouTube to explore! Join our YouTube Community!

Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish mutual fund screeners and momentum, low volatility stock screeners .every month.
About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored three print books, You can be rich too with goal-based investing (CNBC TV18), Gamechanger, Chinchu Gets a Superpower! and seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations based on money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements, write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions, seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)
Free android apps