Have a base before topping it up

While some insurers sell top-up policies without a base policy, it is risky to do so

Rising healthcare costs have meant that most families need to have adequate medical insurance at all times. In addition, many companies have started asking employees to co-pay if senior citizens in their families need medical insurance.

Under such circumstances, when the cost of healthcare is rising and companies are reducing their insurance cover, employees need to create their own back-up mechanisms to deal with medical needs. And the back-up system, preferably, should be cheap.

Top-up insurance can be handy here. It kicks in after the threshold limit or base limit has been exhausted. The buyer has three options to get the base policy: either, he can depend on the employer’s insurance cover, buy one for the family or be willing to pay the base amount from his pocket.

However, many companies may not consider the latter option. There is no written regulation which states that one has to take an indemnity policy before taking a top-up policy, says Ramesh Ramani, senior vice-president, consumer lines, Tata AIG General Insurance Company. But some companies insist on one, as there is a certain comfort about the policyholder’s health if he or she has already been insured. Such a product can also be opted for by businessmen or entrepreneurs who have the purchasing power and can manage emergencies or healthcare expenses up to a certain limit on their own. They might feel the need to take insurance only beyond that threshold limit.

You may opt to manage the expenses up to the threshold limit through a basic health insurance plan or own funds. This feature of the top-up plan makes it more economical in nature as the first part of the risk is being taken by the customer himself. A top-up policy can bring down costs by about a fifth, says Divya Gandhi, head, general insurance and principal officer, Emkay Insurance Brokers Ltd.

For instance, for an individual policy having a sum assured of Rs 5 lakh, a 50-year-old will have to pay about Rs 15,000 as annual premium. As against this, a top-up policy of Rs 5 lakh for a couple is available at Rs 5,000 annual premium.

There are two kinds of top-up policies. One where the deductible (the amount paid by the policyholder) is per incident and one where the deductible is per policy year. The deductible per year is more useful as you can stagger the deductible amount over the year. Whereas in the case of per incident, if you don’t exhaust the deductible at one go, the top-up will not kick in. Unfortunately, in India, very few companies offer deductible per year policies.

But there are disadvantages of taking a top-up policy without a base policy. If you have a base policy and have already served a part of the waiting period for the pre-existing diseases, then while taking the top-up, the company will give you that benefit. Otherwise, you will not be able to claim for the first four years in case of a top-up. Also, a top-up without a base policy may not offer the benefit of cashless treatment. And you still have to undergo medical tests for the top-up policy as well.