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Top up your health insurance with fixed-benefit plans to take care of recovery expenses or make good loss of income

Over the past few days, many cell-phone users have been bombarded with calls or SMSes, urging them to buy a new 'three-in-one' plan from Life Insurance Corporation of India (LIC). The plan offers health, life as well as accident cover, not to mention tax benefits.

LIC Jeevan Arogya, a defined benefit plan, is similar to schemes floated by private life insurers. Simply put, these plans hand out a lump-sump amount (a pre-decided amount) upon hospitalisation of the policyholder. Now the crucial question is: should one go for a defined benefit plan from life insurers? To find an answer, you would have to first educate yourself about the two options available to you to fund your healthcare-related expenses - indemnity-based health covers, usually offered by general insurers, and benefit policies like Jeevan Arogya, usually from life insurance companies.

INDEMNITY-BASED HEALTH COVER

The most popular form of health insurance in the country are the indemnity policies, often referred to as mediclaim. The policies mostly cover expenses related to hospitalisation. The claims are settled by the insurer either on a cashless basis through tie-ups with hospitals or by reimbursing expenses after the bills are submitted. Only hospitalisation-related expenses are admissible under such policies, which means various expenses, like commuting to the hospital, fall outside the purview of such health covers.

DEFINED BENEFIT PLANS

Earlier, health insurance plans were the sole preserve of general insurance companies. However, several life insurance companies have also now started offering health plans. A large number of these policies is in the nature of benefit covers, where the benefit is pre-decided. That is, the insurance company pays a particular amount to customers when they make a claim. "The key advantage of benefit policies is that policyholders do not have to worry about claim settlement as they know beforehand the amount that would be disbursed. Also, the documentation procedure is simpler," says Gaurav Garg, CEO and MD, Tata-AIG General Insurance. Another advantage is that you can make a claim even if you have already been reimbursed by an indemnity policy for the same treatment.

"In a benefit policy, the sum insured for the eventuality is paid irrespective of what is spent. However, in an indemnity policy, one is only reimbursed the actual cost," says Gaurav Rajput, associate director, marketing, Aviva Life. "Another advantage of fixedbenefit products is that in case of any eventuality, you can claim both from an indemnitybased cover and a fixed-benefit cover," he says.

The benefit plans do not insist on the original discharge documents to settle the claim. In that sense, a benefit policy can be used as a top-up cover to take care of recovery expenses or make good the loss of income due to temporary break in employment. "The main difference between these two health covers is the tenure. Usually, indemnity plans have to be renewed annually whereas defined-benefit plans are renewable after three years or more, depending upon the cover," says Rahul Aggarwal, CEO, Optima Insurance Brokers.

HOW TO CHOOSE

As you can see, both these plans operate on different planes. An indemnity plan takes care of your hospital expenses either through a cashless facility or reimbursement, whereas your benefit plan pays you a particular sum irrespective of your actual expenses. So, what should you do? Ditch indemnity plan? Or the other way around? "Ideally, one should opt for a fixed-benefit plan along with an indemnity-based cover to completely address his/her health needs," says Rajput of Aviva. In a sense, a benefit policy can be used as a top-up cover. While the indemnity plan would pick up your hospitalisation bill, the benefit policy will take care of the recovery expenses or make good the loss of income due to temporary break in employment, if any.

CAN YOU AFFORD A COVER?

If you are already pushing 50s and are planning to buy a health policy, you may have to fork out a hefty premium for the cover. Also, the pre-existing disease clause will hit you very hard as reimbursement plans do not cover pre-existing diseases for three to four years. "If you don't have any financial constraint and can afford the hefty premium, you can opt for a mediclaim. But you have to back it up with a contingency fund, which has to be built just for your healthcare expenses. This need gets stressed as you enter your 40s," says Kartik Jhaveri, certified financial planner, Transcend India.

"Today's senior citizens are more comfortable funding their own expenses and don't want to depend on their children to avoid financial burden," he says. "Small and young savers can start off with an SIP and build a corpus over 20 years. That way they can benefit from the compounding effect even if the investment amount is very small. If you are not a systematic investor, invest the cash surplus over a period of four to five months and direct that money to building a healthcare fund. You can use your bonus or any additional savings to start of this corpus and make incremental contributions for a period of 4-5 months and freeze the money. This is a good proposition only and only if you are not servicing an expensive loan," Jhaveri says.

Once you build the corpus, keep the asset allocations intact depending upon your age and risk appetite. You can afford to have a high exposure to equity in your late 20s and early 30s. But it has to accommodate more of debt instrument as you approach your 50s. "Finally save the corpus in the form of fixed deposits and liquid funds, given their stability and safe nature. The money is intact and can be redeemed within 24 hours even in case of emergencies without any penalty," points out Jhaveri.

Source : ET