I have tried so many times to convince people to take medical insurance cover and the biggest resistance I face is to convince people that what seems hunky dory today may not be the same in future. Every one swears by the saying ‘Health is Wealth‘ and most of the people also proactively try to ensure that they remain healthy. Regular exercises, healthy eating, having fruits as a part of diet are few of the points which they try to incorporate in their day to day life styles. While these efforts can reduce the probability of ending being in a hospital, it can not eliminate a person falling sick or being seriously ill which may require saying a hello to the hospital bed ! And all of us know, right from the time you enter into the hospital the medical bills start mounting. The more number of days you need to stay for your treatment, the heavier the bills become. And god forbid if a person needs a surgery, then the bills are atleast over a lac (0.1 million) rupees.
How does Medical Insurance Work ?
MI can help a person to bear the financial brunt of hospitalisation bills. However, in order to get this benefit, a person needs to subscribe to a MI insurance policy. The amount of cover which an insurance company shall bear will depend upon the sum assured on the policy which can be as little as Rs. 50,000. The subscription amount is to be paid generally on an annual basis and is call insurance premium. This premium amount is generally based upon multiple risk factors associated with the insured person. Some of such factors can be :
- Age of a person – more the age, more is the premium considering the likelihood of ending up in a hospital is more with aged people.
- Any existing diseases – if you have any existing disease, be prepared for a higher premium.
- Smoking history – can end up with higher premiums
- Profession – if you are in an occupation which may result in hazards to your health (such as mining), your pemiums would be higher.
- Amount of cover – if you need larger hospitalisation cover, then you would have to pay higher premiums.
If an insured person ends up in a hospital, he has two options :
- Cashless settlement – Many insurance providers provide the facility whereby the hospital shall settle the bills directly with the insurance company. This is the most preferred option as the insured person would not be required to pay any expenses upfront.
- Re-imbursement option – This is less prefered option whereby the insured person first needs to pay all medical expenses to the hospital. Within specific number of days (generally less than 30 days) the insured person would need to file a re-imbursement of expense claim with the respective insurance company with all supporting hospital bills. The insurance company reviews the expenses and pays out the claim to the insured. A point to note is that the claim needs to be made within the specified number of days else it lapses !
I have Critical Illness & Term Insurance – Do I still need Medical Insurance ?
Definitely yes ! Medical insurance is a breed of insurance which aims to cover cost of hospitalisation by reimbursement. To understand it better, you may want to read our other articles which cover Term Insurance (TI)and Critical Illness Insurance (CI). After reading them you would realise that TI and CI have a different objective to suit and MI doesn’t fulfil those objectives. MI along with the other three insurances form an important part of financial planning which aim at mitigating the risk of financial issues associated with the life of a person. Term insurance (TI) provides a lumpsum to the nominee if the policy holder dies. Critical Illness (CI) cover provides a lump sum amount to the policy holder if he / she is diaganosed with a Critical Illness mentioned in the policy holder. This fund can then be used for what so ever purpose the policy holder wishes. However, Medical insurance does not provide an insured person any fixed amount. The amount provided by the insurance company is a reimbursement of medical expenses. The closest resemblance to Medical Insurance is a vehicle’s comprehensive insurance policy which can be used to pay for the repair bills of a car.
Lets take an illustration whereby a person has a TI & CI insurance but does not end up taking a MI cover. If such person catches an illness which is not critical (such as cancer, etc.) and he doesn’t dies, any hospitalisation bills associated with curing the person shall not be borne by CI (as it is not a critical insurance) or TI (as the person is still alive). Considering that the hospitalisation bills are on the rise, even a minor treatment could end up shocking the financial position of a person. Hence MI is advisable for every individual.
Medical Insurance for Dependents
Generally people want to take insurance policies only on the earning member of the family. It is some what okay if it it relates to Term Insurance considering the fact that if the dependent dies, the earning member still continues to feed into the financial stability of the family. However, in case of Medical Insurance, the situation is different. If a dependent ends up in a hospital, the associated hospital bills still needs to be paid by the earning member and if there is a Medical Insurance for the dependent, these bills would be shouldered by the insurance company.
Things to look out for while buying Medical Insurance (MI)
If you are on a shopping trip to buy MI for your family, the pointers which you may want to consider are :
1. Cashless settlement – your insurance company should support cashless settlement of hospital bills with the hospital. In some cases it may mean that you would need to visit your nearby hospitals and check out the list of insurance providers with whom they have a cashless settlement arrangement. In some cases the hospital in your locality may not have such an arrangement with the insurance company you are looking out to take the policy from. Hence it is an important exercise to identify the list of insurance providers which are in arrangement with the hospitals in your catchment area.
2. Exclusions – each insurance company has a list of medical conditions which they don’t cover. Some of them are very obvious and fair. For example, suicide or pre existing conditions for x number of months / years. However, other conditions may be quite restrictive. You should go through the list of exclusions to avoid unreasonable insurance companies.
3. Voluntary deductable (excess) : Generally most of the insurance companies would impose an ‘Excess‘ or voluntary deduction on each claim made by the insured. This means that if you make a claim, for example, of Rs. 10K hospitalisation bills, the insurance company would compensate Rs. 10K less the value of ‘Excess’. This excess can be from zero to several thousands. An insurance provider having closer to zero ‘Excess’ is preferable as it would mean that the insured person would be re-imbursed in full. You might be wondering why there is an excess. Excess clause prevents an insured person to take undue advantage against an insurance policy and file repetitive claims of small amounts. It also ends in promoting genuine insurance claims.
4. No Claim Bonus (NCB) : is a crafty way designed by insurance companies to incentivise people in not filing insurance claims for petty amounts. For every year of no claim on insurance policy, an insured is provided 1 year of NCB point. This NCB is used by insurance companies to provide discount on the insurance premium to the insured. The more such years you have in pocket, the lesser is your insurance premium. For example, a normal premium may cost Rs. 10k. However with 1 year NCB, it would cost 9K, with 2 year – Rs. 8K, 3 years – Rs. 7. You should look out for such insurance policies which promote NCB as it would help in reducing your long term insurance premiums payouts.
5. Group Insurance Cover : this is another innovative product which aims to provide a group insurance to all members of a family under a single insurance policy. Under a Group medical insurance policy, a single premium is paid for insuring the health of all members. The policy assumes that all members of the family may not require hospitalisation at once and hence a single policy may be in most cases be sufficient to cater to the insurance requirements of the entire family. It may be true in most cases, however, you should aim to take a higher sum assured in case you want to go for such a policy. This is because if more than one family members need hospitalisation, the policy benefits would be capped to the overall sum assured.
Employer vs Own Insurance
This is one of the most common dilemma. If your employer provides you a medical insurance policy as a perk, then probably you don’t need another cover. Further, many employers extend this benefit to the immediate family members (spouse and children) free of cost. Parents can also be included at a discounted rate. If this is possible, go for it. You would get best possible deal with minimum cost. The only disadvantage is that you won’t accrue any NCB which you could use should your employer stop this benefit or should you choose to leave your current employer. But again – if you stick with your employer for more than 1-2 years, the NCB benefit is out run by free medical insurance !
It would be my sincere advice to all readers – get yourself a medical insurance. India is a country which does not provide free medical facility and hence you would not want to be in a situation where your hard earned saving goes down the drain in case of an unforeseen hospitalisation situation. Atleast in that situation you would have one less thing to worry about – the financial hardship !