X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 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
 
 
How is a 'Top-up Policy' different from Mediclaim?

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

The Right Financial Advisor Is Around the Corner (Outside View)

Mar 10, 2016

An opportunity to find an impeccably trustworthy and competent financial guardian is in the offing.

Why financial planning should be dull and boring (Mutual Fund Corner)

Feb 29, 2016

Most financial planners come out as whiz kids who throw around financial jargon. But financial planning can be actually easy, provided one follows a disciplined approach.

What Are E-Wallets And How To Use Them (Mutual Fund Corner)

Feb 12, 2016

PersonalFN highlights the benefits of parking a portion of your expenses in e-wallets and using them efficiently.

Is Consumption Boom Over In India? (Mutual Fund Corner)

Feb 2, 2016

Mutual funds take a bearish call on the FMCG sector. The sector has started playing out due to a combination of slower growth and expensive valuations.

How to Find a Saint Amongst Sinners? (Mutual Fund Corner)

Feb 1, 2016

Ethical practices help build long lasting relationships, and healthy long-term business relationships are often mutually rewarding. But PersonalFN is of the view that the financial services industry in India seems to have forgotten this.

More Views on News

Most Popular

This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

Aug 17, 2017

A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working(Vivek Kaul's Diary)

Aug 21, 2017

Most Indians who cannot find jobs, look at becoming self-employed.

It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

Aug 16, 2017

The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

5 Steps To Become Financially Independent(Outside View)

Aug 16, 2017

Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

Think Twice Before You Keep Money In A Savings Bank Account(Outside View)

Aug 22, 2017

Post demonetisation, a cut in bank savings deposits rates was in the offing.

More
 

Become A Smarter Investor In
Just 5 Minutes

Multibagger Stocks Guide 2017
Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

MARKET STATS