Niche plans should follow indemnity plans

As benefit policies pay only for a set of ailments, you might have to pay out of your pocket on most occasions

Ritesh Kumar, managing director and chief executive of HDFC ERGO, says the market for (defined) benefit plans is growing. Gradually, there will be a movement from hospitalisation covers towards these plans, he adds.

Benefit plans offer a lump sum amount, as mentioned in the sum insured. While these help take care of ancillary expenses, hospitalisation or indemnity plans reimburse the actual and admissible medical expenses incurred during hospitalisation, and are subject to sub-limits and restrictions, if any. Most hospitalisation reimbursement-based plans do not cover miscellaneous expenses such as transportation and food expenses for dependants.

Recently, Bajaj Allianz General Insurance launched the Surgical Protection Plan, Religare Health Insurance launched critical illness and personal accident policies and ICICI Lombard launched an OPD (out-patient department) cover. Other types of benefit plans include hospital cash covers and women-specific critical illness covers.

THINGS YOU SHOULD KNOW

• A benefit plan offers a pre-determined lump sum, irrespective of the bill amount
• It provides enhanced coverage, compared to hospitalisation plans
• Treatment can be planned in advance, as the actual payout is confirmed
• Salaried individuals can use benefits plans to increase coverage over the group hospitalisation plan
• But if you aren’t employed, you cannot avail of the hospitalisation cover
• Some benefit plans do not offer medical cover and are restrictive in terms of age
• Given benefit policies pay only for a defined set of ailments, you may have to pay out of your pocket on many occasions
• These products have strict claims norms; for instance, a disease can be claimed for only once in a policy year

M Ravichandran, president (insurance), Tata AIG General Insurance, agrees with Kumar. In urban areas, predefined benefit policies can be a growth engine, as some customers perceive hospitalisation covers as having restrictive payouts and higher premium rates, he says. Some seek alternatives such as treatment-specific or illness-specific covers. These specific benefit plans are developed keeping in mind the claims data with each insurance company, the growing incidence of lifestyle-related ailments and increasing healthcare costs.

Benefit plans have distinct advantages. Suresh Sugathan, head (health insurance), Bajaj Allianz General Insurance, says, "The major advantages of benefit plans are lump sum benefits without deductions; the claim is free from a contribution clause; enhanced coverage compared to hospitalisation plans; they are easy to understand; and the treatment can be planned in advance, as the actual payout is confirmed. For a hospitalisation policy, it depends on the sub-limit and co-payments. Also, the premium is comparatively less than that for hospitalisation policies."

So, should salaried individuals opt for benefit plans, as they usually have an employer-provided cover, instead of a hospitalisation plan? Yes, this will help one enhance the existing insurance cover under a group cover.

Rakesh Jain, chief executive of Reliance General Insurance, says, "Customers whose basic requirement has been fulfilled by any kind of a health insurance plan - either bought on an individual basis or provided by an employer - should consider buying benefit plans, the main purpose for which is payment for long-term expenses or for financial liabilities such as loans that one might be unable to service due to chronic ailments." An important factor is some of these benefit plans do not offer medical cover and are restrictive in terms of age, he adds.

Most group hospitalisation covers provided by employers are customised and the benefits might vary across employers. Further, an employer, to reduce the premium outgo, might have a cap on certain ailments and room limits, as well as a co-payments clause based on the grades of employees. Such restrictions are not applicable in the case of benefit policies. "Also, according to norms, customers with benefit plans can make a claim under his/her benefit policy, as well as from a hospitalisation policy; they also have an option to save on the sum insured under the hospitalisation policy by claiming the entire amount under the benefit plan," says Sugathan.

The flip side is when you aren't employed, you will lose the hospitalisation cover. Therefore, it is advisable to first have a comprehensive indemnity cover and, subsequently, opt for a benefit plan, in case you feel it is needed. Benefit plans are complimentary covers and can be taken along with any other health insurance cover. These are meant to enhance your insurance cover and give a lump sum benefit. Given benefit policies pay only for a defined set of ailments, you might have to pay out of your pocket on many occasions.

Typically, these products have strict claims norms; for instance, a disease can be claimed for only once in a policy year. Also, for claims for ailments that aren't critical (such as open bladder surgery or neck surgery), only a fraction of the sum assured is paid, even if you buy the highest sum assured, experts say.

For Bajaj Allianz's Health Guard individual hospitalisation reimbursement plan, the premium for a sum insured of Rs 10 lakh is Rs 10,913 for a male aged 26-40. The premium for the Surgical Protection Plan (a benefit product), for the same age bracket and sum insured, is Rs 11,500 for the base plan, including three add-on covers---for hospital cash, critical illness and personal accidents. These add-on covers are optional; for the base Surgical Protection Plan, the premium for the 26-30 age group and the same sum insured is Rs 5,639 for men and Rs 5,468 for women. But putting a little more money could give you a better utility comprehensive cover, in case you don't have one. The highest sum insured under a hospitalisation and Surgical Protection Plan is Rs 10 lakh. However, for critical illnesses, it could go up to Rs 50 lakh.

Defined benefit plans won't be prevalent across the country anytime soon, as benefit plans can be availed of only by those who have had an indemnity plan. And, given the insurance penetration in India, that seems unlikely as of now, says Tata AIG General Insurance's Ravichandran. Typically, only up to 20 per cent of the premia for an insurance company come from benefit plans; the rest are accounted for by indemnity plans.