How to Buy a Health Insurance Policy

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.

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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!

~~~~~~~~~~~

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59 thoughts on “How to Buy a Health Insurance Policy

  1. Krishna

    Pattu,

    I bought 10 lkhs floater policy from Oriental last December through Medimanage, Can I Convert this to Individual Policy?

    Reply
  2. Krishna

    Pattu,

    I bought 10 lkhs floater policy from Oriental last December through Medimanage, Can I Convert this to Individual Policy?

    Reply
    1. Paul

      Pls read the policy wordings online. I have Oriental too and AFAIK they have a facility to convert from family floater to individual. Bear in mind that the coverage gets divided.

      Reply
  3. Krishna

    Pattu,

    How about Religare Insurnace, there are no sub limits and rent limits.. I do not see any Public sectors with such good offers

    Reply
  4. Krishna

    Pattu,

    How about Religare Insurnace, there are no sub limits and rent limits.. I do not see any Public sectors with such good offers

    Reply
    1. pattu

      Processing is not much of an issue. I have a united policy and have claimed 3 times. Yes the sub-limits are an issue. If you are young, you can take a chance with it and increase you sum insured as much as possible each year. Else go with a private player who has been around for a while.

      Reply
      1. Krishna

        Pattu,

        I am middle aged person(35yrs) maximum you can take policy for 10 lakhs in united India. How you can increase the cover further ?

        Reply
        1. Krishna

          Also I have a existing Oriental floater policy for 10 lkhs shall I take new individual policy or take a super top up cover. what do you suggest

          Reply
          1. pattu

            You can either take a super top up cover or another individual policy. The max cover will not remain 10L forever. With time it will be hiked.

          2. Krishna

            Also there is a clause in Oriental policy to load the premium in case of claim upto 20%.

            3.23 NO CLAIM DISCOUNT / LOADING:

            A discount of 5% on the premium, in respect of each claim free year, subject to a maximum of 20% SHALL be allowed provided the policy is renewed with the company without any break. In case any claim is admitted under the policy, the entire No Claim Discount earned SHALL be forfeited in the next renewal of the renewal of the policy. However, the No Claim Discount SHALL continue to accrue afresh from the next claim free year.

            In case any claim is admitted under the policy, where No Claim Discount has not accrued or the earned No Claim Discount has been forfeited, a Loading SHALL be levied on the renewal premium @5% for each claim occurred year subject to a maximum of 20%.

          3. Krishna

            Thanks Pattu, for your opinion, I am planning for either super top up from United India Or individual policy from the same company

    1. pattu

      Processing is not much of an issue. I have a united policy and have claimed 3 times. Yes the sub-limits are an issue. If you are young, you can take a chance with it and increase you sum insured as much as possible each year. Else go with a private player who has been around for a while.

      Reply
      1. Krishna

        Pattu,

        I am middle aged person(35yrs) maximum you can take policy for 10 lakhs in united India. How you can increase the cover further ?

        Reply
        1. Krishna

          Also I have a existing Oriental floater policy for 10 lkhs shall I take new individual policy or take a super top up cover. what do you suggest

          Reply
          1. pattu

            You can either take a super top up cover or another individual policy. The max cover will not remain 10L forever. With time it will be hiked.

          2. Krishna

            Also there is a clause in Oriental policy to load the premium in case of claim upto 20%.

            3.23 NO CLAIM DISCOUNT / LOADING:

            A discount of 5% on the premium, in respect of each claim free year, subject to a maximum of 20% SHALL be allowed provided the policy is renewed with the company without any break. In case any claim is admitted under the policy, the entire No Claim Discount earned SHALL be forfeited in the next renewal of the renewal of the policy. However, the No Claim Discount SHALL continue to accrue afresh from the next claim free year.

            In case any claim is admitted under the policy, where No Claim Discount has not accrued or the earned No Claim Discount has been forfeited, a Loading SHALL be levied on the renewal premium @5% for each claim occurred year subject to a maximum of 20%.

          3. Krishna

            Thanks Pattu, for your opinion, I am planning for either super top up from United India Or individual policy from the same company

  5. shoba

    My father is 55 yrs and having problem of elephantiasis and eye catract and my mother is 52 yrs and she is free of health problems.can u suggest which health policy suits under their condition.

    Reply
  6. shoba

    My father is 55 yrs and having problem of elephantiasis and eye catract and my mother is 52 yrs and she is free of health problems.can u suggest which health policy suits under their condition.

    Reply
  7. dipak jambusaria

    i am 64 and having base policy of 3 lacs plus 50% bonus. i checked with religare/star etc apart from insurance brokers. No clarity is emerging on following pt:
    1. super top up policyof 20 lacs can be taken with deductible of 5 lacs. For this base policy is not required. If there is base policy, limitation of room rent affects the amount payable under super top up . But if there is no base policy will it affect payments under super top because of room rent limit?

    Reply
    1. freefincal

      Sorry, I am unable to help. I have asked this question in facebook group asan ideas for wealth. You can join there if you like or I will forward the answers to you

      Reply
  8. dipak jambusaria

    i am 64 and having base policy of 3 lacs plus 50% bonus. i checked with religare/star etc apart from insurance brokers. No clarity is emerging on following pt:
    1. super top up policyof 20 lacs can be taken with deductible of 5 lacs. For this base policy is not required. If there is base policy, limitation of room rent affects the amount payable under super top up . But if there is no base policy will it affect payments under super top because of room rent limit?

    Reply
    1. freefincal

      Sorry, I am unable to help. I have asked this question in facebook group asan ideas for wealth. You can join there if you like or I will forward the answers to you

      Reply
  9. G M Ajit

    The cost effective way to take health insurance, especially for a retired couple, is to take a family floater for Rs.5 lakhs, of a public sector insurance company through a public sector bank for around Rs.6000, and then add a super top up for 10 or 15 lakhs.

    Reply
    1. freefincal

      I have not looked into. Buying insurance is ultimately about comfort level and not about features. If sub-limits are okay, then I always recommend a PSU over private.

      Reply
  10. Arul Selvan

    There is one more very economical option of "Group insurance for bank customers" from many PSU banks, who have tied up with PSU insurers and private insurers. I have one from Canara Bank- Apollo Munich. I made a cashless claim last year without much problem. I even successfully claimed pre-hospitalization expenses too. It has no loading, no sub limits, lifelong renewal, etc. (but all features are plain vanilla).

    Pl. visit here for a detailed comparison :

    http://www.gettingyourich.com/blog/why-health-insurance-offered-by-nationalized-banks-is-an-attractive-option

    Reply
    1. freefincal

      No free lunch. Low prices implies poor service. Even if the service is good, I will never get into a group policy. This is like buying a new policy year and not renewing. Works only for only those who cannot afford it.

      Reply
      1. Ajit

        Why do you say it implies poor service? Also, what really is the disadvantage with the group policy compared to a independent family floater policy? Please elaborate so that we can understand and take the right decision. The disadvantage I have observed is the maximum limit of only 5 lakhs. However, it can be overcome by taking a super top up or top up policy for a large amount.

        Reply
  11. Mani Sri

    How does porting to another insurance company and / or different scheme (such as family floater to individuals) affect moratorium years on pre-existing conditions, no claim history, etc., especially for age group of mid- fifties? I have been trying to find a clear answer for this from different sources, but clarity eludes me. Pattu sir, Your clarification, if you are aware will be appreciated.

    Reply
  12. Sundar

    Dear Sir,
    My father is 64.
    He has PED (diabetes and Osteo Arthritis)since last 3 yrs. So far no claims made on any medical policies.
    His portfolio of medical policies as below.
    1. NIAC taken in 1998 (3lakhs + bonus 1.5 lakhs). Annual premium = 16832
    2. Bank of India/NIC swasthiya bima (2011) SA= 5L ÀP= 7080
    3. Syndarogya/United (2014) SA = 5L ÀP= 7420
    4. Oriental bank /Oriental (2015) SA=5L AP=6830
    5. Indian Cancer Society/NIAC SA = 2 L AP = 1100
    Our Mediclaim advisor says My father is over insured and he can opt out of expensive NIAC policy.
    He also says claim procedure for all policies are similar and are administered by TPAs.
    He also says if I get into any problem with claims I can approach ombudsman at our city and normally they are reasonable in their judgement.
    I said to him that I had taken public sector bank policies at items 2,3,4 above and cannot trust their service. He is manager at NIAC health insurance dept. and he says, since I am educated and we'll versed in procedure there is absolutely no worry. PSB insurers will honour claims and he is baffled at my bias against PSB insurers.
    What is your advise in this matter ?

    Reply
  13. B

    Probably a correction in the post…
    Under.......
    Window Dressing….No-claim bonus:
    Last para reads as “premium will typically increase up to 50% of the sum insured”…
    I am sure you mean that sum insured will be revised upto maximum of 50% of original sum insured…..and not the premium..

    Reply
  14. Sriram R

    I have a question. I have a group insurance policy through my company for Rs 5 lakhs. There is no option for top-up. Can I take an additional insurance for top-up? I will end up having two different insurance. Is that legal?

    Reply
    1. Arul

      Nothing illegal about it.
      You need not have an existing insurance to get a super or normal top up. The first x lakhs will not be paid by the topup policy. That is all. You need to keep a copy of all the bills. You have to prove that you have incurred the first x lakhs to claim the amount exceeding x lakhs (upto your sum insured in the topup). It will be better to get the top up from the same company (slightly more convenient). But, it is not must.
      Normal top up will cover more than 5 lakhs in each hospitalization. Super top up will cover after 5 lakhs total in a year (adding all the claims). Hope it is clear.

      Reply
  15. skup Aut Katowice

    If you are not wise as to how to go about auto repairs, now is the time to become educated about it.

    Maruti will offer you all kinds of used cars in Mumbai which you prefer to buy.
    The downside of the car tax rates is the trouble it'll cause to average or lower income people.

    Reply
  16. Jitendra N Ghosh

    I could not understand the point No. - "4) Minimum exclusion period for pre-existing diseases"
    Can you please explain with a scenario?
    Is it like this:-
    I am 29 years now. I took a Policy today i.e. in the year 2016 and have no pre-existing disease as on today. The policy covers pre-existing after say 4 years. Now on 2020 i.e. after 4 years suppose I am diagnosed with a critical disease. Would I be eligible to claim at that time provided I renewed my policy every year? Or 4 years after the diagnosis of a disease i.e. after 2020+4 = 2024?
    Would be obliged to receive a reply. Thank you.

    Reply
    1. freefincal

      You buy in 2016 a cover X. Since you no pre-existing disease today, no issues. At 2020 there is an illness (abc). The current cover is Y (before abc). You can claim for all hospitalization including abc up to amount Y. If in 2021 you add 1L to Y then that 1L cover alone will not eligible for abc related hospitalizations for 4Y from date of purchase. I hope it is clear.

      Reply
      1. Jitendra N Ghosh

        Sir
        Thanks for the clarification. Its very much clear.
        Also I have one more doubt. Suppose I take a Policy in 2016 declaring all my Health condition in the past and with no critical illness. Suppose in the next year 2017 I get diagonised with a Critical Disease (which was actually not existent prior to taking policy). Will I be able to claim for the treatment for this disease. Will there be any chance that they(insurer) will wrong prove that the disease existed prior to the taking of policy and reject the claim? I found this type of case in the book7, though it was for Life Insurance I just conceptualised for health plan also.

        Reply

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