Understanding the fine print of
Health insurance policy

Most experts emphasize reading the fine print of all investment documentation, nobody iterates the importance of understanding the terms and conditions. Given the number of times terms and conditions are required to be read even while you are browsing the net or downloading software, we have become immune to it and don’t even bother reading it. However, for your investment documents, despite being digitised, you must spend time and energy to understand what you are committing your money to.

Health insurance documents are quite complex since the risk assumed by the insurer is quite huge, they have a very comprehensively drafted policy document that covers their bases and indicates what the policy would cover.

Health insurance gaining momentum:

The current pandemic has increased the need for availing of health insurance. There has been an increased probability of hospitalisation due to coronavirus over the past 2 years. The treatments for complicated cases in private hospitals have been expensive. This has made many individuals sign up for health insurance to cover their medical expenses in the event of hospitalisation or incurrence due to contracting coronavirus. There are many options for health insurance in India, the choice of the right one is itself challenging. After choosing the right one, it is important to read and understand the terminologies in health insurance plans.

Health insurance is a complex instrument with many clauses which may be beyond the comprehension of individuals. By understanding the terms and conditions pertaining to health insurance, you will be able to make an informed decision.

Ignoring or signing up for health insurance without reading the fine print could lead to rejections during claims. To de-jargonise the health insurance policy, we have the below terminologies which you would come across in most health insurance plans in India.

1. Sum insured:

1. Also termed as sum assured is the policy coverage, the sum insured can range between Rs. 5 Lakh to Rs. 100 cores. The sum insured should align with the existing ecosystem and requirements. If one is availing of health insurance for multiple people (family members), then one has to evaluate the cumulative requirement and avail a family floater health insurance.
   
   

1. Premium:

1. A certain amount, called the premium, is paid to the health insurance company against the policy purchased. The insurance company assures to pay the sum insured on the occurrence of a certain event.
   
   In the case of health insurance, the insurance company honours any claim against medical expenses. The premium is a function of the type of policy, the sum assured, age and health of the policyholder, family history, lifestyle etc.
   
   

1. Critical illness:

1. Health insurance companies cover expenses related to medical treatments. Critical illness refers to those illnesses which are life-threatening such as cancer, heart attack, kidney failure, organ transplant etc. Critical illness may be offered as a cover under the basic plan or can be offered as a rider.
   
   

1. Network hospital:

1. Insurance companies have a set of network hospitals from where the insured can undergo the required medical treatment. Any hospital which has an agreement with the insurer to provide cashless medical treatment to policyholders is termed as a network hospital. On signing up with a health insurance company, the insured will be given a copy of the network hospitals, the same can be downloaded from the health insurers website as well. This is a very convenient arrangement extended to individuals, as the insured will have to directly take admission in the hospital and not worry about arranging for funds etc., The hospital based on the policy number will directly interact with the insurance company and carry out the settlement seamlessly. This is a stress-free mechanism for the insured.
   
   

1. Cashless claims:

1. Cashless settlement is one of the two types of settlement offered by health insurance companies, under this settlement method, the hospital bill is directly settled by the insurer. The settlement is done upfront and there is no waiting period to reimburse the payment.
   
   Cashless claims are convenient, reduce the time in logistics and documentation as well. Many people prefer this mode of settlement and consider it as one of the vital factors for choosing a health insurance policy. The alternate type of settlement involves the insured making the upfront payment, collecting the required bills and submitting to the insurer alongside required documentation. The insurer will then make the required investigation and due diligence honour the claims to the extent that it adheres to the nuances of the policy.
   
   The important aspect that you need to keep in mind whilst availing of cashless settlement:
   
   • This mode of settlement is available only upon seeking treatment from network hospitals.
   • Hospital will directly interact with the insurer and update regarding the line of treatment to ascertain if the coverage would be valid and claims would be honoured.
   • Despite being cashless, the best practice is to maintain the documentation pertaining to the hospital expenses.
   • Read through the fine print regarding the cashless settlement to be familiar with the terms and conditions. There may be sub-limits and clauses which may not facilitate a complete cashless settlement.
   • Cashless claim is allowed only to the extent to which the sum insured is available, if the expense is above such sum insured then the excess funds have to be brought in via out-of-pocket expense.
   • If your treatment amount exceeds the sum assured, then the remaining balance has to be paid by you. The insurance company won’t be liable to pay the full amount in such a scenario.
     
     

1. Claim settlement:

1. The term ‘claim settlement’ of ‘settle a claim’ refers to the payment of money by the insurer to the counterparty (hospital directly in the case of cashless settlement and to the insured in the event of reimbursement) on the occurrence of the risk against which the policyholder was insured.
   
   

1. Claims ratio:

1. This is an important factor to consider while choosing the right insurance policy. The claim settlement ratio is calculated as a per cent of life insurance claims settled by the insurer during the financial year divided by the total number of claims received during the financial year (including the ones that are pending from the previous year). This metric is indicative of how promptly the insurance company settles the claims of its policyholders.
   
   When choosing a policy, always look for those insurance companies which has a high claim settlement ratio. Many of the insurers generally maintain a settlement ratio of higher than 95%, although it is prudent to look at the claim settlement ratio, this should not be the only factor to determine the choice of the health insurance plan.
   
   

1. Top-up plans:

1. This is a plan which enhances the existing base plan’s sum insured, by availing of a top-up plan, the insured can claim medical expenses in addition to the maximum limit of the sum insured. After exhausting the sum insured amount completely, this top-up plan will be the additional layer of protection to ensure that the insured does not fall into any financial stress. This works as a backup plan for your base health insurance policy.

For example, if your base plan is with a sum insured of Rs. 5 Lakh and the top-up plan is worth Rs. 3 Lakh then, the total sum – insured would be Rs. 8 Lakh. If you were to incur a medical bill of Rs. 6 lakh, then your insurer will pay Rs. 5 lakh from your base plan and the additional Rs. 1 lakh from the top-up plan. If you did not avail of a top-up plan, the insurer will settle your Rs. 5 lakh from the base plan, the additional Rs. 1 lakh will have to be an out-of-pocket expense
There are two types of top-up plans offered by most of the health insurance companies in India.

Top-up plans:

This type of top-up plan replenishes the sum insured upon exhaustion to a certain limit. If the medical expenses increase beyond the base plan’s sum insured, the top-up plan comes into play and is activated.

Super-top-up plans:

After the pre-determined threshold limit, these types of top-up plans will provide additional coverage. The top-up plan considers the threshold limit for every claim on a standalone basis, whereas the super top-up plan cumulates all the claims for the policy period and accordingly provides coverage.

To illustrate the difference, here is an example:

From the above illustration, it is evident that super top-up plans offer the required level of cover under circumstances when there are multiple claims within the same year. Given the rate at which medical costs are escalating, it makes ample sense to avail super top-up plan if it aligns well with your requirement.

9. Waiting period:

This is also called the qualifying period, it is the time that has to lapse before the coverage under the health insurance begins. Typically, upon purchase of any health insurance policy, there is a 30 day waiting period, any claims only after the lapse of 30 days will be honoured.

Any medical expense incurred within the 30 days of purchase of the policy will not be honoured. Depending on the extent of risk and the turnover, the insurer affixes the waiting period, for pre-existing diseases the waiting period is usually on an average 24 months. Maternity care and critical illnesses such as cancer etc. have longer waiting periods.

10. No-claim bonus:

This is a type of reward provided to the policyholder for making no claims towards the policy for the entire policy period (one year). In the context of health insurance, if the policyholder has not made any medical expense claims during the entire year, a reward in the form of a no-claim bonus would be extended to the policyholder.

This no claim bonus usually translates to a reduction in premium or enhancement of base cover policy. The latter has become more popular. The IRDAI allows the portability of a no-claim bonus, which means that if you were to shift your health insurance from one insurer to another, the no-claim bonus would also be transferred.

11. Inclusions:

There are some procedures and services which are covered by health insurance companies. In the event you claim medical expense which falls within the purview of inclusions, then the health insurance company will not reject the same. These claims will be honoured subject to satisfaction of other conditions. Some of the common inclusions in all health insurance policies are hospitalisation, operation theatre fee, medicine expenses etc.,

12. Exclusions:

This is the exact opposite of inclusions, some types of medical expenses are not covered by the insurers. The exclusions are mentioned in the relevant documents including the brochure and website. It is important to make note of the exclusions to ensure that you associate with a health insurance policy that aligns well with your requirement. Typically, most health insurance policies exclude elective medical treatment such as cosmetic surgery (non-restorative) and medicines that do not address any specific ailment and purely to uplift the overall wellness etc.

13. Tax benefit:

Premiums paid towards medical insurance can be claimed as a deduction under section 80D of the income tax act. The deduction is available on regular health insurance premiums, premiums towards top-up plans and critical illness plans. The tax benefit is allowed for premiums paid for self, spouse, dependent children and parents. The maximum limit is Rs. 25,000 under this section, however, if your parents (at least one of them) is senior citizens, then the allowed limit is Rs. 50,000 in a financial year.

14. Deductibles:

This is the base amount that needs to be paid by the policyholder before the benefits from the insurance company can be availed. The insurance company becomes liable to pay the claim amount or benefits under the plan only when the medical expenses exceeds the pre-determined deductible amount.

For example, if the claim is Rs. 1 lakh and the deductible is stipulated at Rs. 20,000, then the insurer is liable to pay only Rs. 80,000. If the claim is lower than the deductible, then the insurer will not honour the claim. Deductibles and premiums have an inverse relationship.

15. Sub-limits:

Often, some clauses restrict the claim on an itemised basis, for example, the room rent could be claimed only up to 10% of the sum insured. In such a case, if the room rent exceeds the sub-limit, the insurer is obligated to honour only up to the limit mentioned in the clause. The additional amount would be an out-of-pocket expense. It is ideal to choose a plan with minimal sub-limits even if it means paying a higher premium.

16. Co-payment:

This is an arrangement wherein the policyholder will have to pay a part of the medical expenses on their own, the insurance company is obligated to pay for the remaining amount. This is mentioned under the co-pay clause, it is better to choose a plan with no co-payment clause. The co-pay mechanism will lead to a huge out-of-pocket expense.

17. Co-morbidities:

This is a term that has gained popularity amidst the pandemic, these are chronic or long–term medical conditions in an individual. Co-morbidity refers to the existence of more than one medical condition or disease in an individual at the same time.

18. Pre-existing diseases:

The diseases which already exist in an individual before the purchase of the health insurance policy are referred to as pre-existing diseases, there is a waiting period applicable for benefits of the plan to kick in for such pre-existing diseases.

19. Renewal:

The policy term for a health insurance policy is 1 year, it can be renewed for as many years as mandated and as per the eligibility of the policyholder.

20. Add-on covers/riders / optional covers:

Riders are add-on covers that offer coverage for certain specific types of risk, the sum assured designated for the specific rider is required to be paid out by the insurer on the occurrence of the event. These add-on riders are offered at a very low cost since they cover the only specific risk. IRDAI has also set a certain limit on the premium payable to riders. The premium towards riders cannot exceed 30% of the basic insurance policy. Critical illness rider, maternity rider, personal accident cover, hospital cash are some of the most common riders that you can avail of.

Frequently Asked Question

1. Why is it important to understand the health insurance policy?
   Health insurance is a complex instrument with many clauses which may be beyond the comprehension of individuals. By understanding the terms and conditions pertaining to health insurance, you will be able to make an informed decision.
2. What are the perils of signing up for a health insurance policy without appropriately reading the terms and conditions?
   Signing up for health insurance without reading the fine print could lead to rejections during claims and also not buying into the most competent product available in the market.
3. Conclusion

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