Thursday, 21 March 2019

Podcast | Digging Deep: Friendship with money series – Part 3

It’s friendship week and we’re talking personal finance, so it is about time we discuss that one thing that is most like a friend to you and the family – insurance. When we talk about Insurance, we generally mean term insurance. It is essentially a no maturity plan, meaning it offers only financial protection in case of any eventualities. That is, of course, the main point of an insurance plan. Safety. Looking out for our loved ones when we aren’t around. Sorry, that’s a tad filmi but probably quite true too.

A health insurance is, on the other hand, is a present moment friendship kind of thing. It is a type of insurance that provides safety when it comes to medical expenses. And if there’s one thing we know for certain, it is that medical expenditure only seems to rise exponentially. In inflationary times like the one we are living through, when a liter of petrol costs 80 rupees, medical expenses can be forbidding. Think of all the movies where a hero’s best friend hands over his hard earned money to the hero to save his bedridden mother. Health insurance is the friend and you’re the hero. Hero, let’s find out all about the best way you can choose your 4AM friend on this edition of our week-long Friendship Week series. My name is Rakesh, your best friend for the day, and this is Digging Deeper with Moneycontrol – Health Insurance edition.

Ashish Mehrotra, MD & CEO, Max Bupa Health Insurance says, “cities like Mumbai, Delhi etc. have high treatments costs. Hence, anything less than Rs 15 lakhs for a family of 2 adults and 2 kids would be insufficient.”  This is where health insurance comes in. Health insurance is like a friend for life, lending you a helping hand when you or your family is unwell so you don’t end up penniless.

I know that sounds corny, but it is true. Health insurance is a valuable ally during tough times.

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Before we look at it in detail, let’s do a brief run through of the overall health insurance scenario in the country. Current data indicates that employers account for 9% of all health related expenditure in India. On the other hand, personal expenditure accounted for a whopping 82% of all health related expenses in India. This could literally be people borrowing from friends to pay hospital bills. Now, we know health insurance is usually provided to employees by companies. It is one of the benefits we consider when looking at job perks. But overall, that’s a very small number. Just 18% of urban Indians and 14% of rural citizens have health insurance.

The World Bank estimated in 2010 that approximately 25% of Indians had some form of health coverage.

Current data also estimates that health insurance makes up only five to ten percent of all the health expenditure in the country. This industry comprises mainly government sponsored insurers and private, standalone insurers. Health insurance can be tricky to navigate. Most of us make do with the coverage provided by our employers. But many such plans have loopholes and provided limited coverage. For instance, some plans have a limit on the number of people it covers. Which is the reason many policy advisors recommend individual or family plans for everyone.

Now, you may wonder if you even require health insurance. There is an axiom that does the rounds, regarding health insurance: Get health insurance when you don’t want it. Because you may not get it when you want it.

Again, that friend analogy comes to my mind. Invest in your good friends, take care of them and they will take care of you. That about sums up the wisdom behind buying health insurance. Because as we get older, insurance companies do that thing with pre-existing conditions: they give us a hard time about covering such ailments. Ironic then that a report in the Economic Times in 2015 noted that half the respondents of a survey by Max Bupa believed that health insurance is for old people, and 48% believed they didn’t need it since they are healthy. We’re never prepared when something goes wrong healthwise. Especially as we age. Yashish Dahiya, CEO of Policy Bazaar, said in an interview that 70% of medical costs occur above the age of 60. In the face of such facts, it makes sense to invest in health insurance at an early age so we can avoid any worries during later years when medical expenses skyrocket. And given the provisions for critical illnesses – like diabetes or cancer – or specific illnesses like dengue which are absent in regular insurance plans, it makes sense to invest early so we don’t end up broke if we ever face such a situation. What did I tell you? Health insurance is that safety net you never knew you needed until you actually do.

So let’s examine how health insurance works. We know about life insurance or term insurance. The benefits from the policy are received only after the demise of the insured, or at the time of maturity – such as in the case of an endowment policy. Health insurance provides financial assistance when you or a family member are hospitalized, or when you claim reimbursement on money spent on medications or other related expenditures.

We have two ways of claiming this insurance – One, claim the total amount you have spent during treatment. In this scenario, we produce all the bills related to the treatment to the insurance company and are reimbursed the amount. Needless to say, this method can be financially strenuous on people who have limited resources.

The second method is TPA, or Third Party Administrators. In short, this requires that an individual be hospitalized and the expenses incurred are taken care of by the insurer. This is somewhat similar to the cashless facility we see in auto insurance.

A typical health insurance plan can be purchased either for individuals or for entire families.

If you are single and have no familial responsibilities, you’re better off purchasing an individual health insurance plan. You probably have that employer provided health insurance card you carry around in your wallet. But as we mentioned earlier, they tend to be limited. You would do well to get a supplementary cover. Group covers – the one your company provides –  are usually small in size, and may not cover your individual needs very well. A personal health insurance adds to your corporate cover. It can also protect you at at time when you’re between jobs. Once we quit a job, the policy is automatically terminated. Alright, that’s exactly how work friends are, isn’t it? Job gayi, dost bhi gaye. Admit it, how many ex colleagues are you still close friends with? Almost none.

Anyway, a 25-year-old with no health insurance can get himself or herself health coverage worth 5 lakh rupees for annual premiums that are a little over 5000 rupees on average. As any expert will tell you, starting early is key. The younger you are, the cheaper your insurance premium will be. Kinda like how, the later in life you make good friends, the more expensive the restaurant or pub bills get. Wait, do I sound cynical? I do like my friends. Honest.

Now we come to your best friend in terms of health insurance. The Family Floater Plan. if you are married or have a family  – let’s face it, most of us do – a family health insurance, also known as the Family Floater Plan, can cover an individual, his/her spouse, children, and parents. The main benefit of Family Floater Plans is they cost a fair bit less than buying health insurance for multiple members separately. A Moneycontrol analysis shows that such plans, with a smaller coverage of around 5 lakhs, can cost around 8000 rupees per annum in premiums.

Another factor to consider when looking at family floater plans is age. The cost of the premium depends on the age of the group’s oldest member. Parents who are are senior citizens, or on the verge of becoming senior citizens are part of the plan, experts recommend creating a separate floater plan for them. Because their insurance requirements are likely to be higher. For seniors who are under the age of 55, a 5 lakh health cover will have premiums in the range of 15,000 rupees.

Now, a health cover of 3-5 lakhs will usually suffice in most parts of the country and for most non-serious ailments. However, for what the industry terms critical ailments – a dozen serious and/or life threatening illnesses like cancer, Alzheimer’s, Kidney failure etc – the costs spiral out of control. Now, friendship week or not, since no friend will lend you a kidney, in such scenarios, experts recommend a critical illness plan. The Economic Times noted in 2016 that according to estimates by various global and domestic organizations, the increasing prevalence of lifestyle diseases in India means that one out of four people is at risk of succumbing to diseases like cardiovascular ailments or cancer before the age of 70.

While a healthy lifestyle and diet can mitigate many problems, genetic predisposition has seen many Indians still fall prey to these issues. A critical illness plan, or CI plan, is usually recommended around age 40 for most people. Saroj Satapathy of Ideal Insurance Brokers says, “Considering the change(s) in lifestyle, diseases related to work life, and people getting heart attacks as early as 35, I feel one should buy it early to save on premium and also to rule out facing such one off, life threatening situations.

A critical illness plan provides what ET calls “a lump sum benefit” that can pay for the cost of care, treatment, recuperation, and even pay off any debt that may have been incurred. Essentially, whatever your hospital expenses, your insurer will reimburse the full sum you have been insured for under a CI plan. And here’s the reason people are advised to get such a plan earlier – and bear with me ,this gets a bit morbid –  any critical illness diagnosed within the first 90 days, and death within 30 days following the diagnosis of the critical illness will not be covered by a CI plan. So, an individual usually needs to survive 30 successive days after the diagnosis of the critical illness in order to claim insurance.

Like I said, the family health insurance plan can literally serve as your best friend when dealing with health issues of everyone you care about.

Before we wrap up, let’s look at some nuts-and-bolts advice. A few things to keep in mind when looking for the right health insurance plan.

Not to belabor the point but –  start early. Jyoti Punja, Chief Customer Officer at Cigna TTK Health Insurance said a majority of Indians believe health insurance is required only when you feel vulnerable to illnesses. They assume they will be healthy in their younger years, and no medical emergency will strike. But she advises that “The earlier and younger you buy a health insurance, the lower you pay for it. Buying a plan at a young age has many advantages …low premium, tax benefit, lower chances of rejection, wider options, adequate financial planning etc.”

And if you are looking at a family floater plan, which is the case most often in India, Mehrotra recommends you, “…opt for a complete protection plan which includes various value-added benefits like OPD, free health checkups, wellness benefits, health coaching, international treatment for critical illnesses, loyalty rewards irrespective of claims, etc…also top up…health insurance portfolio with a critical illness plan since it offers a lump-sum payout, and acts as a second financial buffer.”

And here’s some advice for young couples planning a family.  Brijesh Parnami, head of Essel Finance Wealth Services, says, “You should apply for maternity insurance before you conceive. Most insurers will deny cover if you are already pregnant.” This happens because insurance companies term the case as pre-existing. Yes, pregnancy is termed pre-existing if you apply for maternity coverage after conceiving.

Vikas Mittal of Magma HDI advises young couples that insurance plans with maternity benefit come with a long waiting period. Hence, it is advisable to purchase it soon after one gets married. The usual waiting period for such plans extend beyond two years. In fact, the waiting period for most pre-existing conditions is between two and four years. Insurance companies tend to exclude pre-existing conditions for such long periods, so you want to buy a policy that has a reduced waiting period for pre-existing conditions.

Vaidyanathan Ramani of Policybazaar has some great advice for your health insurance planning: the most important thing you should look for when buying a health insurance plan is room rent capping. Things like doctors’ fees, surgery/procedure charges, nursing expenses, medicines and room rent-  all these components have specific caps called sub-limits. The Economic Times reported that according to 2016 data, the number of customer complaints against health insurers rose on account of dissatisfaction with claim settlement. The main reason for this  – sub-limit of room rent. This is a common feature in health insurance policies. In many policies with sub-limits, the cap on reimbursement for all other medical expenses is inevitably linked to the room-rent limit.

Hence, Ramani recommends that your plan’s room rent limit must be as high as claim reimbursement would be as per room rent limit. There are two options here. One, stick to a room that costs within the percentage of the insurance agreed. For example, if the sum insured in the policy is Rs 5 lakh and room rent is capped at 1% of sum insured, it is advisable to choose a hospital room with rent equal to that 1%, meaning a room costing Rs 5,000 or lower. If that person takes a room worth Rs 6000 a day for a period of two days, that’s an increase of 1000 rupees or 20%. In such a case, reimbursement sub limits for all other claims get reduced by an equal percentage. If his your total bill was around one lakh rupees, the deductible of 20% will be applicable and he will end up paying Rs 20,000 out of his own pocket.

The other option, according to Naval Goel, Founder & CEO of, is  “Choose policies which do not have a sub limit clause even though they might come with a bit higher premium. The benefits are much higher in such cases.”  Prashant Jhaveri of  Medi Assist Healthcare Services says, “The sub-limits on policies are priced into the health insurance premiums charged. Hence, it is…a matter of one’s choice and appetite. One can protect one’s freedom to choose room category by getting sub limits removed by paying extra premium.

And finally, because health insurance is mainly about financial protection, make sure you increase your insurance cover once in a while. This will ensure your insurance keeps pace with the rising medical expenses. Mehrotra of Max Bupa Health Insurance says “Medical inflation is estimated at 12-14% and health insurance coverage needs to keep pace with insurance companies provide guarantees of 10% increase in sum insured at the time of renewal, irrespective of claims made in the policy year.”

Then there’s the tax benefit, of course. Health insurance premiums are eligible for tax deductions under section 80D of the Indian Income Tax Act. Individuals under age 65 can claim a deduction of up to 15,000 rupees for the health insurance premiums.

All things considered, as we’ve seen, health insurance seems like one of the safer bets you can place in your life. Like a good friend, it will serve you well the longer and better you invest in it in your younger years. Sure, in all this we didn’t recommend that you draw up a health insurance plan for your friend. Maybe just get him/her one this friendship week? Source:

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