₹e-assemble is a video series covering the basics of money management and goal-based investing for absolute beginners. Step 1 was listing Goals, Dreams and Nightmares. Step 2, laying the foundation of wealth with an emergency fund step 3, buying a term life insurance policy and this week in step 4, we shall consider choosing a suitable health insurance policy. Buying a health policy is one of the most difficult decisions in personal finance as this space is filled with needless jargon and buyers often fail to look deeper than the sugar coating.
Also, unlike a term insurance policy, a health policy is a not a “fill-it, shut-it, forget-it” arrangement. The premium increases every 5 years or so. Or it may increase by a huge amount if the insurance company suffers several claims from its customers. We may need to increase the sum insured from time to time. The terms of the policy or the very nature of the policy can change upon renewal.
Unlike a term policy that can be discarded upon retirement or even earlier, it is prudent to continue health cover even when one has (more than) “enough” wealth. Therefore it is important to take a long-term view when it comes to health insurance purchase. The premium could well be (if not already) our biggest annual purchase sooner than later.
Unlike a stock or a mutual fund, a bad purchase cannot be easily transferred (sold). Although it is possible to shift the insurance from one company to another, only applying for a transfer is a right. Accepting the porting request is up to the (new) insurer.
I don’t wish to scare you. Thankfully, the core features of most policies are identical. So it is not as hard as it looks provided we ignore the fringe benefits discussed below.
My health insurance policy
I hold an individual United Indian Platinum Health Cover for self, wife, son and a Gold Cover for my mother for the last 10 years with three claims – one for myself, wife and mother. It was not exactly an informed purchase as I got it out of fear and in a hurry when my late father was hospitalised with cancer without any insurance.
Over time I got to know the policy features well and also read other policy wordings. So what follows is not from an expert but from someone interested in the nitty-gritty of a product and scraps of gyan collected from here and there. What I discuss (as always) is nothing more than common sense.
In the first video, let us consider the essential aspects of buying term insurance. In the second, we go through the process of comparing health insurance policies. These two are covered in this post.
In the next post (tomorrow), we shall walk-though the policy wordings of few policies voted by members of the Facebook group, Asan Ideas for Wealth. Many of them also listed what covers they have and why they purchased it. I thank them for their support and participation. Let us get to it.
How to buy health insurance: What to look for and what to ignore
How to compare health insurances: creating a shortlist
How to buy health insurance: Slide deck
Executive summary for ₹e-assemble step 4: How to buy health insurance
1: Get yourself a personal cover asap. Do not assume you can shift your company policy to an individual cover – it may have limitations. Do not get a super top to your corporate cover with no base cover. See:
Experience: After porting from group health insurance to a family floater
2: A company cover may help in case your parents or in-laws have pre-existing diseases. Getting them a separate cover (if possible) is always a good idea though. You may need the help of an intermediary (broker/agent) if insurers start rejecting you. The intermediary may get you the policy because of the sales they bring in. However, always disclose all details no matter how you buy.
3: Get a base policy for a few lakh + top up (will cover this next week) OR get a large floater cover for your family (get a separate policy for parents or for those with fragile health) for say 15-20 Lakh.
4: It boils down to how much money you can spare!
5: Discounts and bonuses only matter for expenses. Health insurance is an investment for your peace of mind
6: Buy a policy that works for you. Not the “best” policy. This means you should know what you want! That is hard for a lot of people!
7: Focus on core benefits on health policy: hospitalization cover and day care cover for major procedures.
8: Ignore fringe benefits like restore, recharge, health check-up*, non-allopathic care** etc. More the fringe benefits, more expensive the policy and more confusing the terms.
* I will not provide periodic updates on the status of my health to the insurer. Health check-ups are important and I will pay for them from my pocket. Please note that insurer cannot increase the premium or deny renewal on the basis of these results or your claim history. However, they are free to deny an increase in cover based on your claim history and/or health check-up results. The Same logic applies to the fancy “benefits for staying fit”.
** non-allopathic hospitalization is pretty rare and a policy will not cover casual doctor visits (any kind of doctor)
9: Build a relationship with a family doctor. I have family doctor + family neurologist + family orthopedist, dentist, dermatologist, ophthalmologist …. (yeah I am pretty sick in more ways than one)
10: Understand what a pre-existing condition is. It need not be declared in the policy. If they find evidence that it could have existed before the inception of policy a claim can be denied. Moral: read policy wordings. Remeber that there is a good reason that policy wordings are in dull font and located in hard-to-find places. They are hoping that you will not read it!
11: Understand how room and ICU daily rent limitations affect you. Those who live in expensive cities should avoid them. Others can get by with these limits, but need to find out room tariffs from local hospitals. A policy with no sub-limits will cost more (obviously!)
12: Along with sub-limits, avoid co-payments, and disease-dependent limitations in cover amount (eg. only 40% of sum insured for piles, fistula, hernia, etc.)
13: Do not get attractive to restore option, re-fill option and discounts. They are being provided only because the insurer is betting that they will not be utilised often. Remember they have legal help in wording policies carefully.
14: Before you start comparing policies, have a list of conditions that are important to you (eg. lower pre-existing disease waiting period)
15: I have shown policy comparison results from https://www.gibl.in/health-insurance/ in the second video. Please note, I found this website by accident when writing about: Illustration: Factors that matter while choosing health insurance. I have no connection with the owners of the website. Do not assume that all data provided in this comparison portal are accurate. Use it for a short-list of 2-3 policies and read the latest policy document (old clients may have a different policy document).
Bottomline: All insurance is a game of probability. The insurer is betting on you to not get sick often. Two can play this game. I would not pay for any feature that I am least likely to use. For example: non-allopathic hospitalization, maternity expenses (company cover provides this or I will happily pay (how many children am I going to have?!) ambulance cover (I have 5 hospitals within 200 metres of where I live, so will pay from my pocket).
In other words, ask yourself which features matter the most and focus on them.
Do not go by feature listings on webpages. For example, many people incorrectly believe that PSU insurers (United India, Oriental, New India) do not provide day care coverage. They do not advertise it prominently enough. If you read the policy document it will be clear enough.
When you read an article about health insurance find out who has written it. If it is a broker or agent or aggregation portal, do cross-check facts. Do the same with this post. As regular readers will tell you, I am clumsy and make mistakes often. I have only one thing going for me – I mean well. Cheers.
Health insurance is a complex subject. I would like to continue talking about it next week too. Please suggest issues and policy features that would benefit many.
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