Higher sum insured better than restoration benefit

Compare premiums before you buy. A top-up cover works out cheaper in most cases

Recently, most health insurance companies have added a feature to their product called as restoration benefit. If a person exhausts his/her sum insured in any year, the company refills the cover. This feature was introduced to fill an important but lesser known gap in the popular family floater plans, where the sum insured is shared by all individual family members. In case a member falls seriously ill or meets with a major accident, there are chances that the entire sum insured may get exhausted, leaving the remaining family without a health insurance cover for the remaining part of the year. Restoration benefit acts as a 'magical' backup to a family floater health insurance. In case one family member exhausts the entire cover, it automatically replenishes the cover for any hospitalisation that occurs for other family member during the year.

This came handy to Praveen Kumar, who opted for a family floater health insurance policy of Rs 5 lakh with a restoration benefit. In the second year, Kumar's medical coverage including the no claim bonus was Rs 5.5 lakh. But he met with an unfortunate accident and was hospitalised. His total bill came to Rs 5.6 lakh, exhausting his entire mediclaim. After a few months, in the same policy year, his wife suffered from Dengue and was hospitalised. The hospital produced a bill of Rs 70,000. Now, in a regular family floater policy, where there is no restoration benefit, the Kumar family would pay the hospital expenses from their own pocket. But because he had a restoration benefit, the sum insured was automatically restored to Rs 5 lakh even after Kumar had exhausted the entire sum insured. The wife's claim was paid from the restored cover.

Not all plans are same

There are two types of restoration benefits available at present and they work in completely different ways. You need to be careful and read the fine print to see which type of restoration benefit is being offered by the health insurance plan you are considering (See table: Choose Wisely).

Complete exhaustion of sum insured: In many plans available in the market, the restoration benefit triggers only when the entire sum insured plus bonus gets completely exhausted. For instance, in case of Kumar, if the first claim was Rs 5.4 lakh and there is a Rs 10,000 sum insured still available, the restoration benefit will not trigger for paying the dengue claim. The claim amount payable for the dengue will be Rs 10,000 and restoration will kick in for the next claim in the same year.

Partial exhaustion of sum insured: This restoration condition is much better and works in favour of the customer. In such plans, the restore benefit will trigger even based on partial exhaustion of sum insured.

Restoration or top-up?

Restoration is a conditional and temporary bridge on your basic sum insured that may or may not work when you need it. Hence it should not be considered as a substitute to having adequate health insurance coverage that covers long term health care expenses. It is therefore important to consider the additional premium you are paying for restoration benefit vis-a-vis upgrading your cover with a super top-up plan.

In most cases buying a plan without restoration benefit and simply upgrading the same with a top-up is cheaper than buying a plan with a restoration benefits (See table: Additional cover at lower cost). One can even get a Rs 10 lakh coverage by paying the same premium an insurance company charges for Rs 5 lakh policy with restoration benefit.

It's important to read the policy wordings and understand the fine print around restoration benefit before you sign-up. It's a good benefit in a family floater plan provided the notional premium you pay for the additional benefit is nominal.

Restoration benefit should not be considered as a substitute to an upgrade that helps cover your long-term health care expenses. Always evaluate the additional premium you pay for the restoration benefit against taking a high coverage health insurance. No benefit can win against having higher core health insurance coverage in the long term.

The writer is Director, Health & Life Insurance at Coverfox.com