Things To Keep In Mind While Buying Health Insurance

Everybody needs health insurance. An agreement between an insurer and an individual or group, it transfers the risk of a medical emergency from the insured to the insurer for a cost.

The extent of the cost the company is willing to bear for medical costs is called cover. The money the individual must pay to the insurance company depends on the probability of need for medical care and is called premium. The higher the risk, the higher the premium.

Financial planners stress that medical insurance is an essential part of financial planning that helps an individual preserve their wealth-creation goals. When planned and upgraded in a timely fashion, health insurance can save an individual from spending a big chunk of their savings in hospital bills.

If you still do not have health insurance, this is your cue to start planning for one. Here's what you need to keep in mind when buying health insurance. 

When you're in the market for a health insurance policy, the first aspect to consider is coverage. Insurance coverage is financial protection in contract form for your health insurance policy. The insurance coverage takes care of expenses, from hospitalisation and critical illness. 

Be sure to identify whether the policy has a co-pay clause. In this case, the individual agrees to pay a percentage of the hospital bill. This results in the cost of the premium reducing.

There are two kinds of health insurance policies—family floater and individual. A family floater health insurance covers all the members of the family and the insured sum can go as high as Rs 1 crore. An individual policy, as the name suggests, is a private health plan that covers only an individual.

"A lot of people from the salaried class argue that they already have health insurance from their employer and why do they need an external cover. It is always good to have external coverage as an individual or go for a floater plan other than what your employer is offering," explains Arvind Rao, co-founder of Arvind Rao and Associates. 

Age plays a crucial part when going for health policies. The older a person gets, the higher coverage they need to protect themselves in case of medical emergencies. This is because the risk of a medical emergency rises with age.

When buying health insurance, you must read the policy documents to understand what the waiting period is for different illnesses. Usually, when a person buys a standalone cover, there is a waiting period for pre-existing conditions. This means that if an individual must receive medical treatment for an illness that is currently in the waiting period, the insurance policy will not cover the costs.

Rao gave an example of a person who crosses the age of 38 or 39 and has taken standalone cover. The person may or may not have any pre-existing medical conditions, but can utilise the employee cover if he or she does not intend to claim the amount. Then, when the person turns 45, the waiting period would have passed.

"In case something were to happen after that, you will be fully covered under your own policy as well." 

How Much Health Insurance Should You Have?

The sum of your health insurance depends upon factors like age, location, any pre-existing illnesses or lifestyle changes. Experts say a minimum sum of Rs 10 lakh per member is adequate coverage when living in a metro city.

"If you are a couple, you must have a coverage of Rs 20 lakh if you are staying in New Delhi or Mumbai," says Siddharth Singhal, business head of health insurance at Policybazaar Insurance Brokers Pvt. "The amount can vary in a tier II or tier III city where the cost of hospitalisation is not high."

Singhal pointed out that it was up to the individual if they wanted a higher coverage irrespective of the location. He said the individual might belong to a tier II or tier III city, but wants to opt for treatment in a hospital in some other city.

New-age health insurance policies offer a provision where the insured sum keeps increasing when you do not make a claim. Health insurance companies reward the buyer of health insurance with a cumulative bonus or a no-claim bonus if no claims are made for a certain period.

"A Rs 10-lakh policy can become a Rs 70-lakh policy if no claims are made," Singhal said.

A good addition on top of an existing health insurance is building a health fund, according to Rao. "While people do not mind paying premiums pre-retirement, they should also parallelly build a health fund, which will kick in post-retirement."

Health insurance companies have hiked the premium for people above the age of 65 and it is difficult to maintain for those who have limited income. "If you start building a health fund early on, then you will not have to depend upon the insurance companies for coverage," Rao said.

A health fund can be a systematic investment plan of a pharma fund where you can hedge against medical expenses by investing in pharma companies.