X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
How is a 'Top-up Policy' different from Mediclaim? - Outside View by PersonalFN

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

How is a 'Top-up Policy' different from Mediclaim?
Jul 26, 2014

With cost of healthcare being on a rise, the importance of health insurance or Mediclaim is known to many. But it often happens that, the insurance cover taken by one is sub-optimal. Recognising this, insurance companies today offer 'Top-up Health Insurance Policy', which many individuals evince interest in. But what they fail to understand is how such a plan works in comparison to a Mediclaim Policy. So we thought, why not write and educate you over this in our today's edition of the “Financial News.Simplified”.

As you must be aware a Mediclaim policy reimburses your hospitalisation bills in case hospitalisation due to an accident or any illness. Similarly, a Top-up Policy too reimburses your hospitalisation bills in case of hospitalisation due to any accident or any illness.

But here's how the two policies differ and work.

You see, a Top-up Health Insurance Policy reimburses your hospitalisation bills only above a certain amount. This certain amount is known as deductible amount and the insurance company which indemnifies you for the Top-up Policy is not liable to reimburse any amount until the threshold limit (i.e. deductible amount) is crossed. To simply put, in case of Top-up Policy the insurance company pays or indemnifies the risk only above the deductible amount.

To help you understand better, let's take an example:

Mr. Sanjay's Health Insurance Cover
Mediclaim Cover 300,000
Top-up Cover 500,000
Deductible 300,000
Scenario 1 Scenario 2 Scenario 3
Claim Amount 200,000 Claim Amount 500,000 Claim Amount 1,000,000
Liability Liability Liability
Mediclaim 200,000 Mediclaim 300,000 Mediclaim 300,000
Top-up - Top-up 200,000 Top-up 500,000
Self-Contribution - Self-Contribution - Self-Contribution 200,000

In the above case Mr. Sanjay has a Mediclaim cover of Rs 3 lakh and a Top-up Policy of Rs 5 lakh with deductible of Rs 3 lakh. This deductible of Rs 3 lakh means that the Top-up Policy will not have any liability for any claim arising upto 3 lakh irrespective of whether Mediclaim Policy reimburses for his claim or not.

We have further assumed 3 different scenarios to make it clear how Top-up Policy works. So let's explain each scenario one by one.

Scenario 1:

In the 1st scenario we have assumed that Mr. Sanjay is hospitalised and his claim amount is Rs 2 lakh. Now, since the claim amount is less than Rs 3 lakh, which was the deductible amount in Top-up Policy; there is no liability on Top-up Policy to indemnify or pay, irrespective of whether Mediclaim honours the claim or not. In such a scenario Mr. Sanjay is only eligible to claim his amount of Rs 2 lakh from the Mediclaim Policy.

Scenario 2:

In the 2nd scenario we have assumed that Mr. Sanjay is hospitalised and his claim amount is Rs 5 lakh. Now since the claim amount is more than Rs 3 lakh which was the deductible amount in Top-up Policy, the Top-up Policy can indemnify or pay the amount over and above Rs 3 lakh. In such a scenario Mr. Sanjay is eligible to claim Rs 3 lakh from the Mediclaim Policy and Rs 2 lakh from the Top-up Policy. So, by now you must have recognised that Mediclaim liability is limited to the extent of insurance cover of Rs 3 lakh while the Top-up Policy's comes into effect only after claim amount exceeds Rs 3 lakh.

Scenario 3:

In the 3rd scenario we have assumed that Mr. Sanjay is hospitalised and his claim amount is Rs 10 lakh. In such a scenario, Mr. Sanjay is eligible to claim Rs 3 lakh through the Mediclaim Policy and Rs 5 lakh from Top-up Policy, while he has to bear Rs 2 lakh on his own pocket. You see, in this scenario he has to contribute a part of the total amount, as both Mediclaim and Top Up insurance cover limits have been exhausted.

So to conclude...

Remember; before you buy a Top-up Health Policy know the modalities. Don't get into the trap of your insurance agent and buy the policy getting carried away by his luring sale pitch. Ask him the relevant questions and verify what he is saying before doling out a cheque for premium.

Please note that in case of Top-up Policy, the premium keeps on decreasing as the amount of deductible is increased. So, its biggest advantage is its lower premium as compared to a Mediclaim Policy. But at the same time, it has the biggest disadvantage that the deductible is applicable each time you have a valid claim.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Equitymaster requests your view! Post a comment on "How is a 'Top-up Policy' different from Mediclaim?". Click here!

1 Responses to "How is a 'Top-up Policy' different from Mediclaim?"

IndianMoney.com

Jul 30, 2014

Top up is useful when your medical costs breach a particular threshold.This is useful if you have a critical illness such as a heart attack which has a huge cost and can be covered with a top up policy.
For other ordinary diseases a mediclaim insurance policy should suffice.

Like 
  
Equitymaster requests your view! Post a comment on "How is a 'Top-up Policy' different from Mediclaim?". Click here!

More Views on News

Sorry! There are no related views on news for this company/sector.

Most Popular

Sintex's Auditor Resigns. How You Can Protect Yourself from Such Stocks(The 5 Minute Wrapup)

Jul 20, 2018

While the attack on the bad corporate governance is an overhang in the near term...this can be a game-changer in the years to come.

The Answer to Your Wealth Worries: Small Caps (Especially Now)(Profit Hunter)

Jul 10, 2018

If you're worried about the markets - you are on the wrong track. This is opportunity - put your wealth-building hat on, instead - Richa shows you how...

The Multiple Problems with the Minimum Support Price (MSP) System(Vivek Kaul's Diary)

Jul 11, 2018

The price signals that MSP sends out, creates its own set of problems.

ICICI Pru Mutual Fund Tarakki Karega! - The Unethical Way?(Outside View)

Jul 11, 2018

PersonalFN explains how ICICI Prudential Mutual Fund flouted the norms of related party transactions while subscribing to the IPO of ICICI Securities.

PPF v/s Mutual Funds: Which Is Better?(Outside View)

Jul 10, 2018

PersonalFN highlights the key points of distinction between PPF and mutual funds.

More

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

MARKET STATS