How Do I Start Investing? Volume 2- Health Insurance

The age old addage health is wealth has stood the test of time. We as Indians are in such a hurry to make money that we ignore the most important asset- Health. Many of you would admit that you and your loved ones have always planned together to buy Gold, Jewellery and House but have never once spared a minute to discuss health insurance. Many of us think that the health insurance coverage provided by our employers is enough to secure us. Some of you do buy health insurance but tend to buy the cheapest one without reading or understanding the terms and conditions covered under such policies.

Lets understand the Why behind buying a Health Insurance? Did you know that health and wellness sector which includes Hospitals, Clinic, Wellness centres and Rehabilitation centres has the highest inflation amongst any other sector of the economy. Its prices on an average grow by 42% Y.o.Y. This in lay man terms means that the treatment that you could afford last year became atleast 30% more expensive the next year. For many of us that is the difference between getting treated or living with it. Secondly as Indians we have a tendency to invest in non liquid assets like real estate and fixed term papers. That means that when a contingency strikes we have lesser resources available to pay the hefty hospital bills and medical expenses.

Health insurance is the most complicated insurance product you have to buy. There are so many minor details that you need to pay attention to while subscribing to a policy that it makes it almost impossible to ignore the terms and conditions attached to a purchase. Lets figure out the points that you need to take care before subscribing to a Health Insurance product. The first step is to select the right insurance provider. Getting the cheapest policy from the policy provider available on the net is not the best way to approach this. Knowing the Insurance Company is the most important step. The best indicator for selection of a service provider is the Incurred Claim Ratio or ICR. It is calculated by dividing Total Value of Claims/ Total Premiums Collected expressed in percentage terms. It indicates the tendency of the insurance provider to collect premiums but not cover the claims adequately i.e make profits of the insurance premium collected. if ICR is less than 100% then the company is targeting profits, may be insuring less risky individuals or rejecting many claims. Too high ICR may also indicate that the company may run out of funds to pay your claim when need arises. There should be a balance and company with an adequate ICR may be between 95% to 115% is an ideal one. Below is a chart populating the ICR for most non life insurance companies for 2016-17:

Now that you have selected a good service provider, lets figure out which policy and cover suits you best. If you are a family with more members below the age of 30 then taking individual policies is recommended. If not then buying a family floater is the best option. Family floater plans give individual limit to each member in the policy and also club the limit to increase the coverage without impacting the premium. So individually you may be covered for Rs 5 lakhs but as a group may have a floating limit of 15 lakhs. This can come in handy when certain expensive health contingency strikes in the family like cancer or heart surgeries.

Understanding the cover you need requires a bit of introspection. Each person should look at the past history of the family and also known diseases that run in the family. Check facts of how many times you or your family members have been admitted to the hospital is past 5 years and how much has been the average expense involved. Determine a healthy number like 3- 5 lakh per member. Once this is determined then you should generate a quote from your high ranked insurance companies selected based on ICR. 

Compare the Policy terms and not the premium at first. Important terms to pay attention to are:

1) Cashless Facility:  Whether the policy provides the cashless facility? this means that in case of  an emergency you are not required to pay any advances or deposits and the same is taken care by the insurance provider. This is important to ensure that you do not end up having a policy where you pay first and claim later.

2) Network Hospitals:  Find out the hospitals where the insurance policy and provider is accepted. Majority hospitals where you reside and/or work need to be associated with the Insurance provider to ensure seamless use of policy. Having a great policy without a networked Insurance provider can render the policy useless in times of need.

3) Hospital Room Rent: Find out how much hospital room rent is acceptable under the policy. Some policies end up having very small room rents like Rs 800- Rs 1000 which will only get you a sub-standard bed in general ward which will defeat the purpose of investing in Health Insurance in most cases.

4) ICU Charges: There should be no exclusion of ICU charges from the policy. If in case of any contingency the insured needs to be admitted to the ICU such charges need to be covered. Also there should be no limit on such charges. If there is a limit you may exhaust it in case of the contingency and may have to shell out money from you pocket in such a scenario.

5) Ambulance Charges: The ambulance charges should be included in the cover. It should also mention how much charges will be reimbursed if ambulance is used from a non network source.

6) Loading of Premium on Renewal, if claim:  This is a new trick in the arsenal of many insurance providers. The initial premium is kept low and if the insured makes a claim in the year, the insurance premium is revised to a higher limit as the insured moves to a riskier category on claim. This can prove costly as it is beneficial for the insured to have No Loading of Premium and Continuous renewal.

7) Pre and Post Hospitalization Expenses: The insured incurs certain expenses prior to hospitalization. Also certain expenses are incurred post hospitalization also which include medicine bills, physiotherapy and the like. A ideal policy should cover such expenses too as only having hospitalization covered may not be enough. A decent cover would be 10%-15% of base sum insured under this head.

8) Free Health Check up: Lets admit it, we don not have a habit of yearly health check up and prolong it as much as we can. However with good insurance policies a periodic health check eg once in two years, comes at no additional cost and can help in detecting an health challenges of the insured in early days. Good policies cover this clause.

9) Domiciliary Hospitalization:  It is the cover extended when certain diseases or illness are treated home instead of a hospital. This can prove very useful in times where there is shortage of beds at a hospital or the like situation. The amount under this clause should be decent and not too small

10) Maternity Cover: This cover is essential and may have limits inbuilt in most policies issued by leading insurers. It is essential to know the maximum amount claimable under this head.

11) Initial waiting period:  Unlike a car insurance where the cover starts immediately on buying the insurance, health insurances have their own waiting period. This period is specified by each insurer and this should be as minimum as possible. This period can be very high so pay attention on this.

12) Pre Existing diseases: This is a tricky clause and subscribers need to be most diligent on this. Pre existing diseases are the conditions that exists on the day of buying the insurance policy. Most policies have a waiting period for such conditions after which they are also covered in the policy. Pre existing diseases may have exclusions of Kidney stones, cataract etc. Knowing and understanding this clause well will make the difference between a good and a bad policy.

I have only made a small attempt to list down important clauses that you need to pay attention to while buying an health insurance cover. There are many more clauses that may be relevant. Knowing these clauses will help you select the right policy which may or may not be the cheapest policy. I hope you buy an health insurance but may never have to use it. Wishing you good health.

Article by:

CA Saransh Dey

LLB, B.com

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