EXTRA COVER! AT WHAT COST?

With the cost of medical treatment going up in the country, health insurance companies are offering products with covers up to Rs 50 lakh. Some health insurance companies may even allow the insured to increase the existing sum insured by up to Rs 25 lakh through riders, by paying an extra premium.

Many health insurers such as Star Health, Apollo Munich, Future Generali India Insurance Company and Bajaj Allianz already offer basic covers (without riders) worth Rs 10 lakh. As of now, Max Bupa Health Insurance is the only company that sells policies with basic sum insured of over Rs 10 lakh -- Rs 15 lakh, Rs 20 lakh and Rs 50 lakh -- under its Heartbeat Platinum Plan.

These high-cover policies have additional benefits such as maternity covers, coverage for newborn babies, vaccination cost of kids, outpatient dental treatment and sometimes, they even reimburse the cost of spectacles, contact lenses and hearing aids.

Neeraj Basur, chief financial officer, Max Bupa Health Insurance, says, “Apart from a higher sum insured, our scheme offers features such as outpatient treatment for specialist consultations and diagnostics, vaccinations for children up to 12 years, newborn baby cover from day one and relationship doctors for advice and support.”

However, the benefits seem miniscule if we look at the hefty premium pay-outs. For instance, for a 30-year old married person with no kids, a standard Rs 5-lakh family floater policy would cost between Rs 5,000 and Rs 8,000 every year. But, the average annual premium for the Rs 10 lakh cover would more than double to Rs 18,000. And, for Max Bupa’s 50 lakh cover under its Heartbeat Platinum Plan, the premium works out to Rs 63,000.

The question that other industry players and financial planners raise is whether such policies are worth the premium they demand. Shreeraj Despande, head, health insurance, Future Generali India Insurance Company, says, “It is not only the high sum insured but a wider coverage which is important.” From the tax efficiency point of view, an annual premium of up to Rs 15,000 is eligible for tax deduction under section 80D of the Income Tax Act. Thus, a very high premium also does not get you a greater tax benefit.

According to an Insurance Regulatory and development Authority (Irda) report, the average claim paid by health insurers in 2009-10 was just Rs 23,000 and 70% of the claims paid were within the Rs 1,000- 1 lakh band. Only 15% of the claims paid were above Rs 5 lakh. R. K. Kaul, chairman and managing director, Oriental Insurance, says, “The bulk of the claim amount comes to between Rs 1 lakh and Rs 1.5 lakh or even below that, maybe Rs 75,000. Maybe, if somebody has a heart condition, he or she may lodge claims of Rs 2 lakhs, Rs 3 lakhs or even 5 lakhs. One might not need the huge cover unless there is something like a liver transplant. Those cases are few and far between.”

THE OPPORTUNITY COST

According to financial planners, in an ideal case, an individual may need a health cover of Rs 3-5 lakh and thus a floater plan of Rs 10-15 lakh for a family of 3-4 should suffice. “I would not advise anyone to even go for a Rs 20 lakh cover. For a Rs 50 lakh cover, you would be paying a very high premium, which could instead be used for building a corpus,” says Kartik Jhaveri, director, Transcend Consulting, a financial planning company.

Arvind A. Rao, another financial planner, seconds Jhaveri’s views. The difference between the premium of a standard policy and that of a premium policy that offers over Rs 20 lakh cover can be used for building a corpus exclusively to be used for your health needs.

As mentioned earlier, the difference between the premium of a Rs 10 lakh and a Rs 50 lakh policy comes to around Rs 45,000 per year. Investing this sum every year in different savings instruments for 20 years can make you quite rich (See Insurance or Investment?). If you pay the same amount annually to a health insurer, you don’t get anything back. You may not use the policy ever, if you stay healthy.

Stiff competition has forced insurers to innovate and explore new products. There is a lot of activity in this segment. But those who are planning to buy health policies must not get carried away by the marketing pitch of these companies. They should instead, choose plans that serve their purpose best. Remember, you can do a lot with your money.