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Health Insurance Plans - Life Insurers vs. Non-Life Insurers

Do you want to know whether you require a hospitalization policy if you already have a Mediclaim policy? Do you know that 'Health Insurance' is a catch-all term that covers different kinds of health policies? Read onn to get your answers.

Harsh Roongta

04 Dec 2008

The media is full of stories on how non-life insurers, especially the PSU behemoths, are avoiding taking new consumers in health insurance as the health insurance business is reportedly not profitable. On the other hand, we see widespread campaigns by life insurers, including LIC, advertising the benefits of their newly launched health insurance plans. These new health insurance plans advertised so widely by life insurers have brought much needed public attention to this vital insurance segment.

As a consumer, you could be forgiven for being confused. Allow us to throw some light on this and clear this confusion.

The first aspect you need to understand is that the term 'health insurance' is a catch-all term that covers three distinct kinds of health policies.

There is the health policy that reimburses you the actual hospitalization cost for treatment of any disease, offered only by non-life insurers. These kinds of policies are popularly called "mediclaim" policies (mediclaim is actually a brand name but has now become a generic term for such policies).

Then there are two other types of health insurance plans offered - by both life insurers and non-life insurers.

One can loosely be referred to as a "Hospitalization Policy," where you primarily get a daily allowance for every day spent in the hospital. Some policies also provide higher daily allowance for stay in intensive care (the ICU). Yet others have a provision for a lump sum payment if you undergo any of the surgical procedures covered in the policy.

The other type of health insurance cover offered by life insurers and non-life insurers are the critical illness covers. Given the increased stress and strain of modern life as well as unhealthy and sedentary lifestyles, most of us are becoming increasingly prone to serious illnesses, such as cancer, heart attacks, organ failure, strokes, etc. Advances in modern medicine ensure that most of us survive these illnesses. This survival, however, comes at a cost - a serious dent in our ability to earn (salary or from business). critical illness cover steps in here and pays off a lump sum benefit - that helps in protecting your current lifestyle.

Most life insurers have long offered these covers as riders (Riders are covers for additional risks or to enhance existing risk covers). Now these critical illness covers are also being offered as stand-alone policies to cover the risks of specific kinds of critical illness such as say, cancer. These policies are recommended, at the very least, for income earners - contracting a critical illness has a huge financial impact on their future income.

A very relevant question at this point would be:

Do I require a hospitalization policy if I already have a Mediclaim policy?

The mediclaim policy only reimburses the expenditure incurred in the actual treatment of the disease/illness at the hospital. There are several other expenses that are typically incurred, which the mediclaim policy does not reimburse. Expenses such as travel, attendant's lodging, loss of income (for both the patient and/or the attendant), pre-hospitalization diagnostic tests, medicines, etc. can run up to as much as 30-40% of the total cost of treatment of a disease or illness. A hospitalization policy takes care of these expenses.

life insurance companies have done a great job in bringing this topic of health insurance to the forefront of consumer consciousness and hopefully each one of you (unlike our earlier generation which mostly left it to God) will cover your health risks adequately.

We have put together a table that gives you an easy comparison of the various features in each type of policy, and the relative advantages and disadvantages of life insurers and non-life insurers offering these products.

As you will find, the policies offered by life insurers are actually in addition to, not replacing mediclaim policies.

Remember, it is an absolute must that you and your dependents have adequate cover on your mediclaim policy. It cannot be replaced by any other kind of policy.

When it comes to hospitalization and critical illness policies, life insurers offer excellent products. Such policies should be a necessary part of your risk cover portfolio before you can start considering any investment strategy. The only other aspect we would advise you to re-think on is the choice of a savings-linked health product. At Apnainsurance, we have consistently advocated the need to segregate your insurance and investment needs. However, if return on investment is the only reason you will opt for such insurance policies (most people want to know what they will get back if they do not get hospitalized or do not contract any of the critical illnesses covered in their policy), you can buy these savings-linked policies, instead of avoiding health policies all together.

Sr.No.

Description

mediclaim - Reimbursement Policies

Hospitalization Policies

Critical Illness Policies

1.

Main benefits

Reimbursement of actual expenditure incurred during hospitalization for room rent, ICU charges, doctor's charges, medical supplies, etc. irrespective of the kind of illness (i.e. whether requiring surgery or not)

Payment of a daily amount per day of hospitalization (including some additional amounts depending on stay in ICU, length of stay in the hospital, etc.) - called the Daily Cash Benefit. This is irrespective of actual costs incurred in the treatment.

Payment of a lump sum on diagnosis of a critical illness covered in the policy. In some policies, lump sum paid after insured has survived the diagnosis for a stipulated period (typically 30 days).

This is irrespective of the actual costs incurred in the treatment.

2

Are benefits available on more than one policy of the same type?

No. Even if you have multiple policies the total amount you can claim is restricted to the actual expenditure incurred.

If you have multiple policies, you can claim under all of them. However, it is in your interest to disclose any existing policies while buying a new one as your claim is otherwise likely to be rejected on grounds of non-disclosure of material facts.

If you have multiple policies, you can claim under all of them. However, it is in your interest to disclose any existing policies while buying a new one as your claim is otherwise likely to be rejected on grounds of non-disclosure of material facts.

3.

Some other benefits that may be provided

Reimbursing actual expenditure incurred for treatment at home - normally available only if the patient is not in a condition to be shifted to the hospital or if no accommodation is available in the hospital. Also known as Domiciliary Benefit

Amounts payable if you happen to have a surgery of the kind covered by the policy. This is popularly referred to as Major Surgery Benefit. This is irrespective of the actual costs incurred in the treatment.

Free health checks may be available depending on the policy terms.

4

Type of Coverage

Reimbursement of actual expenditure incurred during hospitalization for room rent, ICU charges, doctor's charges, medical supplies, etc. irrespective of the kind of illness (i.e. whether requiring surgery or not)

Coverage could include surgery for removal of kidney and/or thyroid gland, open heart surgery, removal of brain tumor, hernia, uterus removal, tennis elbow release etc.

Critical illnesses covered could include:

Cancer, organ failure, chronic lung disease, coronary artery bypass surgery, kidney failure etc.

5

Exclusions that may normally be there in the policy

Costs incurred in treatment of AIDS, cosmetic surgery, dental surgery not caused due to accident, etc.

All pre-existing illnesses.

Pre-existing illnesses unless specifically covered in the policy, eye tests, dental surgery except due to accidental injury, hospitalization for investigatory purposes, X-ray examination, routine medical examinations, etc.

Pre-existing conditions, existence of any sexually transmitted disease, self inflicted injury, use of intoxicating drugs or alcohol, etc.

6

Who offers such policies

Only non life insurance companies

Both life insurance and non life insurance companies

Both life insurance and non life insurance companies

7

Does the policy have a savings element *

No

Only life insurance companies may offer a savings element

Only life insurance companies may offer a savings element

8

Is coverage guaranteed for life?

Normally the maximum tenure of such policies do not exceed generally 2 years. The insurer reserves the right to not renew the policy. Also, all companies have a maximum age limit, typically 3 months to 65 years, beyond which they do not renew the policy. (There are exceptions to this, where some companies offer coverage up to the age of 75 years.)

life insurance companies normally guarantee coverage for the agreed tenure of the policy.

The maximum tenure available is normally fixed to ensure that the age of the insured at policy maturity is generally 65 years.

Non-life insurers will not guarantee coverage beyond the tenure of the existing policy.

life insurance companies normally guarantee coverage for the agreed tenure of the policy.

The maximum tenure available is normally fixed to ensure that the age of the insured at policy maturity is generally 65 years (although some companies offer it up to 75 years)

Non-life insurers will not guarantee coverage beyond the tenure of the existing policy.

9

Can the insurance policy be cancelled by the insurer?

Yes

Non-life insurers can cancel the policy.

Life insurers typically cannot cancel the policy.

Non-life insurers can cancel the policy.

Life insurers typically cannot cancel the policy.

9

Are premiums pre-fixed for the entire tenure of the policy right at the inception of the policy?

No. Premiums can change from year to year. In the case of mediclaim for senior citizens, IRDA regulations require that the maximum increase in one year is restricted to 150 to 175% of the previous year's premium.

Normally life insurance companies guarantee premiums for a part of the tenure (possibly the first 3-5 years) and thereafter reserve the right to increase the premium after obtaining IRDA approval. Non-life companies reserve the right to price the policies differently from one year to another.

Some life insurance companies offer a fixed premium for this throughout the tenure of the policy (normally issued as a rider on top of an existing life insurance policy). Other life insurance companies guarantee premiums for a part of the tenure (possibly the first 3-5 years) and thereafter reserve the right to increase the premium after obtaining IRDA approval. Non-life companies reserve the right to price the policies differently from year to year.

10

What happens if hospitalization is outside India?

Normally not covered

Some policies will pay even if hospitalization is outside India

Not applicable, because this policy is not dependent on hospitalization. It is instead dependent on the diagnosis of the specified critical illness wherever it happens

11

What this is useful for?

To meet the actual cost of hospitalization for any covered disease

To meet the other incidental expenditure arising from hospitalization

If the policy has major surgery benefits it may also help in meeting a part of the loss of income due to illness

To get a lump sum benefit from the income which will help in meeting the loss of income arising from contracting the critical illness

12

What this will not cover?

1) Incidental expenses such as travel, lodging of attendant, diagnostic tests done prior to hospitalization

2) Post hospitalization expenses after a specified period

3) Temporary or permanent loss of income (of the patient or the attendant) due to the disease

Actual cost incurred in the hospitalization especially where no surgery is involved

Actual cost of treatment

13

Impact of pre-existing disease

Has an impact on premiums and insurability, though now some insurance companies are beginning to offer coverage for costs incurred in treating pre-existing diseases as well, after a cooling-off period or on payment of additional premium

Has an impact on premiums and insurability, though now some insurance companies are beginning to offer coverage for costs incurred in treating pre-existing diseases as well after a cooling-off period or on payment of additional premium

Has an impact on premiums and insurability. Premiums may be increased or coverage may not be available.

14

Whose health should normally be covered

All family members (including the main wage earner) whose medical expenditure will need to be met by the main wage earner

All family members (including the main wage earner) whose medical expenditure will need to be met by the main wage earner

Needed only for those earning income as long as the other risk coverage is sufficient

15

Any benefit on death

No

Typically not offered

Some life insurers offer death benefit

* The savings element in any insurance policy is essentially paid by you - translating into a larger premium. A part of this premium is deducted upfront and only the balance is invested. You do receive the returns on the portion of the premium amount invested.

At Apnainsurance we believe that you should separate your insurance and investment needs.

This comparison table is based on the various kinds of policies as they are commonly understood. We have simplified it considerably for easy understanding. Every insurance policy is a legal contract and has several exclusions and benefits that will be unique to it. The comparison given here cannot be and is not meant to be an exhaustive comparison of all types of policies. It is only meant to give a broad idea of the kinds of health insurance policies that are available in the market.

In conclusion,

If you intend to buy a Mediclaim policy, there is no choice but to go to a non-life insurer.

For the other two types of health insurance policies, our recommendation is to choose a suitable non-savings product offered by a life insurer. Our recommendation is based on the fact that policies offered by the life insurers cannot be cancelled during their tenure whereas non-life policies can be cancelled.

Non-life insurers normally retain the right to terminate any contract of insurance even during the tenure of the policy by sending you a 30-day notice by registered letter at your last known address. In such cases, the insurer will then refund a pro-rata premium for the unexpired tenure of insurance. This right is exercised rarely but is not unknown for corporate insurance policies.

In addition, the policies issued by life insurers guarantee coverage during the entire tenure of the policy, whereas non-life companies may not agree to renew the policy after the policy tenure ends.



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