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Individual or Family Floater which one to choose?

Which mediclaim insurance to choose- Individual or Family Floater?

Harsh Roongta

14 Apr 2009

Today there is an increased awareness about healthcare costs, it is Mediclaim insurance that helps mitigate the risk of such costs. One question for the first time buyer is whether to take individual insurance polices for each family member or a family floater policy.

Before we look at the pros and cons of each type let us quickly look at what each of these policies mean. An individual policy means a separate policy for each of the family members. That means if in a family of three members, each of the family member is covered for Rs. 2,00,000 then eligible hospitalization expenses incurred up to that limit for that particular individual will be reimbursed. In contrast in a family floater plan the limit can be utilized by any of the family member. If the same family takes a family floater plan for Rs. 4,00,000 and say eligible expenses incurred for one of the members was Rs. 3,00,000 it will be fully reimbursed. So in many ways the family floater plan offers flexibility in terms of utilizing the overall insurance coverage among the family as a group. This would seem to indicate that a floater plan is always more beneficial for a family. However there are several other considerations that need to be taken into account before taking this decision. We have used some examples to understand this better.

Given below is a table for the cost of an individual insurance policy for two typical families from Star Health (This company has been chosen at random since it offers both Individual policies and Family Floater policies and has very similar policy wordings for both individuals as well as family floater policy and hence any comparison will be on a like to like basis).

Older Family 1 consisting of Father aged 46 years, mother 40 and 2 children aged 16 and 10 years

Younger Family 2 consisting of Father aged 35 years, mother 33 and 1 child aged 8 years

Policy taken individually for Rs. 2 lacs each

Rs. 13,106 for overall family cover of Rs. 8 lacs

Rs. 7,776 for overall family cover of Rs. 6 lacs

We then tried to find out the value of a family floater policy that they will get for about the same amount of premium. And we found that the older family would be able to get a family floater plan for Rs. 4,00,000 at almost the same cost (Rs. 13,092 as compared to Rs. 13,106 for the individual policies). The younger family fares much better with a family floater policy of Rs. 5,00,000 available at a much lower cost (Rs. 6,998 instead of Rs. 7,776 for individual policies).

As you can see for the older family for the same amount of premium the family floater plan doubles the amount available for each family member (Rs. 4 lacs from Rs. 2 lacs) while halving the overall family cover (Rs. 4 lacs from Rs. 8 lacs). For the younger family the flexibility is increased dramatically (Rs. 5 lacs from Rs. 2 lacs) without a significant impact on the overall family cover (Rs. 5 lacs from Rs. 6 lacs) and with money saved to boot. The reason for this is not far to seek. The family floater plans are priced on the basis of the age of the senior most member and as he/she gets older the flexibility decreases and/or the cost increases significantly.

There are other disadvantages to a family floater policy as well. The policy will be renewed only till the senior most member reaches the maximum age of renewability allowed by that company. As it stands today, at that stage, the other family members will need to take a fresh policy without having the benefit of their claim history and pre-existing disease coverage that comes from continuous renewal of the policy. The same thing applies to children who reach the maximum age (normally 25 years in most cases) after which they will need to buy a separate policy for themselves without the benefit of the earlier continuous coverage that they have got under the family floater policy. Most policies also make no specific provision for continuing cover of the surviving members in case of the unfortunate death of the senior most member.

All in all since continuous coverage and claim history is critical in this category and currently there does not seem to be any stated basis for taking these with you when you are forced out of a family floater plan we would strongly recommend taking individual policies for the whole family.