Arun Singh has taken a Rs. 5 lakh health cover for himself and his wife. However, rising healthcare costs have made Singh realise that he is underinsured. He is caught between up reading his existing policy cover to Rs. 10 lakh and taking a new policy worth Rs. 5 lakh. Top-up plans have added to his confusion. What is the best option for Singh to increase his cover? Singh’s concern about the insufficient health cover that his existing policy provides is justified.

A serious illness or accident may require expensive treatment and exhaust his health cover. A top-up health plan offers additional coverage, at a lower cost, to people with an existing health policy. Such a plan takes care of expenses that result from a single illness and are higher than the cover provided by the existing plan. Since it provides the additional coverage at a relatively lower cost, a medical top-up plan makes sense to Singh. He can buy a new health policy with a Rs. 5 lakh cover or he can upgrade his existing plan by Rs. 5 lakh. However, both these are expensive options.

A top-up plan for Rs. 5 lakh works out much cheaper. The cost of a top-up plan is linked to a factor called the deductible limit. This limit is pre-decided and mentioned in the policy schedule. Only when the cost of a single illness crosses this deductible limit, the top-up plan kicks in. The higher the deductible, the cheaper is the top-up plan. Singh can set the deductible limit as high as Rs. 5 lakh since his primary health insurance policy covers him up to that amount.

The primary policy reduces the risk for the insurer providing the top-up plan. Generally, a top-up plan covers only a single incidence of hospitalisation. This means that only if his hospital bill exceeds the deductible during a single hospitalisation will the top-up cover come into play. There are some plans that do not have the single claim clause and can be claimed for any illness for the deductible amount for the entire year. Such plans are known as super top-ups.

Top-up health plans are designed to enhance the existing policies to cover the actual healthcare costs. The point is not to duplicate, but buy extra cover at a reasonable cost. Top-up plans ensure that there is sufficient cover and that insurance does not run out when need arises.

The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.