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Someone once said, “Without health, life is not life; it is only a state of languor and suffering; an image of death.” Rising healthcare costs and growing lifestyle diseases have necessitated the need for health insurance as a vital financial tool to address healthcare needs.
Health insurance works as a financial-protection tool against medical expenses. It usually provides either direct payment or reimbursement for expenses associated with illness, injuries and hospitalisation, as detailed in the scope of the policy cover. The cost and range of protection provided by a healthinsurance policy depends on the insurer and the type of policy purchased by you. Some policies also cover pre- and post-hospitalisation expenses.
The sum assured in a health-insurance policy is guaranteed as per the terms of the policy as long as the premiums are paid regularly and the policy is in force.
- Health insurance is not inflation protected, which means whenever insurance needs increase or the cost of healthcare goes up, one needs to buy an additional cover. Some policies do provide the facility of adding to the cover with time, which can address inflation at an additional cost.
- The sum assured is guaranteed and the premium is fixed for the policy tenure.
• The facility of pledging a health-insurance policy to obtain loans is not permitted as it defeats the purpose of insurance.
• The only premature exit to surrender the policy at no loss is during the free-look period.
Health insurance policies are portable, which means that one can move from one insurer to another by transferring their existing policies to a new insurer. Portability also enables the transfer of the credit gained by the policyholder for pre-existing conditions if the policyholder chooses to switch from one insurer to another or from one plan to another plan of the same insurer, provided the previous policy has been maintained without any break.
• A policy can be ported only at the time of renewal.
• Apart from the waiting-period credit, all other terms of the new policy, including the premium, are at the discretion of the new insurance company.
• At least 45 days before the renewal, you need to inform your existing company about the switch and the company you want to switch to. You must renew your policy without a break (there is a 30 day grace period if porting is under process).
Premium rates may go up or down on renewal. The scope of policy cover can also change depending on the insurer, since health insurance is most often an annual contract.
The premiums paid towards health insurance are tax deductible under Section 80(D) of the Income Tax Act.
• Premium up to `25,000 for the assessee (and spouse and dependent children). It also includes a maximum payment of `5,000 for preventive health check-up.
• Premium up to `30,000 paid for parents’ health insurance.
• For senior citizens, premiums up to `30,000
The truth lies in the detail. In the case of health insurance, reading the fine print will help you know what the policy covers and what it excludes in due time instead of finding the truth when it comes to a claim. Here are a few common exclusions in most health-insurance policies.
• No-claim/waiting period on pre-existing diseases: Diseases that have been in existence before the policy commencement are not covered, even if you were unaware of their existence. Some companies now relax this requirement by reimbursing the treatment of such diseases after a period of two–four years of the policy. Some do so after four no-claim years on a policy.
• Cool-off period -This is the period when claims are not paid on the medical expenses incurred on the treatment of any health-related condition occurring within 30 days of the policy coming into force (except through bodily injuries due to accidents). Also, in some cases, such as in a cataract surgery, there are sub-limits on reimbursement even after the cool-off period.
• Eye-related expenses: Expenses on laser treatment of eyesight and cost of spectacles or contact lenses are not covered.
• Dental and cosmetic surgeries: Expenses incurred on dental treatment or cosmetic surgery to get the right smile are excluded.
• War injuries: Injuries due to wars and invasions or any claim directly or indirectly caused or contributed by nuclear weapons are not covered.
• Smoker’s premium: Some insurers have a higher premium for smokers. If you were a smoker in the past, you must have a five-year period of abstinence to be termed a non-smoker.
• Others: Treatment through non-allopathic methods such as Ayurveda or Unani medicine is not compensated.
Further, there are provisions that curb the facilities you can avail during hospitalisation. Insurers restrict certain discretionary costs associated with hospitalisation by introducing sub-limits for reimbursement. For instance:
• Room rent: 1.5 per cent of the sum insured per day. If your insurance cover is `2 lakh, room rent will be capped at `3,000 per day.
• ICU charges: 3 per cent of the sum insured per day.
• Doctor’s fees: 40 per cent of the sum insured
• A health-insurance policy can be returned during the free look period, which varies from 15 days to a month, depending on the insurer.
• The policy has a defined network of hospitals under it.
• There are provisions to make late premium payments with penalties.
• Do go through the policy terms and conditions.
Gamblers make bets they hope to win. There is one bet that everyone would love to lose: life insurance. Life insurance is a bet which a policyholder wins only by dying early.
Investment Objective and Risks :
The main objective of the POMIS is to provide an assured monthly return to account holders and help them create a guaranteed regular income. Though it offers no tax incentives, it is a preferred instrument amongst small savers for the government backing that this product offers.
Capital Protection :
- The sum assured in a life-insurance policy is guaranteed as per the terms of the policy as long as the premiums are paid regularly and the policy is in force.
Inflation Protection :
Life insurance is not inflation protected because insurance is a fixed-cover, fixed-tenure product. Guarantees The sum assured is guaranteed and the premium is fixed for the tenure of the policy. Some policies may guarantee a minimum return, which varies across insurers and policies. Policies from the Life Insurance Corporation of India carry a sovereign guarantee
Guarantees :
The interest rate for the POMIS is guaranteed and is currently 7.70 per cent per annum for the first quarter of 2016–17. The interest is paid out monthly. The interest rates will be notified every quarter in line with G-sec rates of similar maturity, with a spread of 0.25 per cent. The interest applicable to you for the duration of the deposit will be the rate at which you make the deposit.
Liquidity :
- Life-insurance policies are liquid depending on the policy type and the number of years a policy has been in force for. There are some policies that are illiquid such as a term-insurance policy.
-• The facility of pledging the life-insurance policy to obtain loans is possible with policies that are with-profits such as endowment plans.
-• Premature withdrawal or closure of life policies is permitted depending on the policy type. Policies that offer premature withdrawal do so after three or five full years of the policy’s existence, depending on the policy type. The premiums paid for during this tenure, along with profits, if any, are paid back after deducting penalties for the early closure of the policy. The penalties vary across insurers and policy types.
Credit Rating :
- Life-insurance policies do not carry any credit ratings.
Exit Option :
- Premature closing of the policy is permitted at a financial loss.
Other risks :
The risk of premiums going down after you have bought a policy exists and so does the risk of premiums going up. There is also the risk of new policies emerging that suit your financial requirements better.
Tax Implications :
Premiums paid towards a life-insurance policy qualify for tax deductions under Section 80C with a limit of `1.5 lakh in a financial year.
• If the premium paid exceeds 10 per cent of the sum assured of the life-insurance policy, the amount eligible for deduction under Section 80C will be limited to 10 per cent of the sum assured. For people with disability, the limit is 15 per cent.
• The proceeds from maturity or claims on a life-insurance policy are exempt under Section 10(10D).
Riders are additional (protection) benefits attached to the basic (life) insurance policy. They are generally limited in size relative to the base sum assured and may have separate terms and conditions, possibly with additional exclusion clauses. Simply put, riders are options that allow you to enhance your insurance cover, qualitatively and quantitatively. Following are the commonest riders: z
• Critical illness Added to a life-insurance policy, it provides an additional cover to the insured in the event of a ‘critical illness’. In most cases, the extra cover is paid upon the diagnosis of a critical illness. The illnesses covered and the premiums you have to pay vary among insurers, but most insurers cover cancer, coronary artery bypass, kidney or renal failure, major organ transplant paralytic stroke, etc.
• Medical expenses Riders under this category cover risk for ailments that may require medical treatment. With living expenses on medical treatments going up, riders under this category are useful, especially with age, when most often medical conditions start to alter (deteriorate).
• Hospital-cash benefit The worry of settling hospital bills (room-rental charges) adds to the trauma of hospitalisation. This rider reduces this financial burden and helps you to recover with peace of mind. But it comes in with many exclusions. Do check before you sign up. Most insurers cover hospitalisation with a minimum stay of 48 hours.
• Major surgical assistance This rider provides financial support in the event of medical emergencies. Specified surgical procedures are covered under this rider, with clearly stated exclusions.
• Disability or dismemberment benefit This rider provides for an additional cover equal to the sum assured on the base policy in the event of a disability as a result of an accident. If the accident results in total and permanent disability, the rider provides for other benefits: a proportion of the benefits will be paid to the insured person every year until he recovers. Some insurers provide the ‘waiver of premium’ benefit as well in the event of a disability.
• Waiver of premium: This rider gets activated in the event of a person (who has taken a life-insurance policy) becoming ‘completely disabled’ (or loses his ability to earn a living due to the disability) owing to an injury. The premiums due on the base policy are waived off till the person is able-bodied again. Even though the premium is not paid during this period, the policy cover is not terminated; it continues as if the premiums were being paid. In other words, this rider acts as ‘disability insurance’ against your life-insurance policy.
Here is a list of some other not-so-common riders.
• Accidental-death benefit This rider gets into effect in the case of death due to an accident during the term of the policy. It adds to the sum assured in the life policy only in the case of death due to an accident.
• Level term cover This rider provides you an additional life cover for a specific interval, which is less than the tenure of the policy. It is useful when you have additional responsibilities or financial liabilities.
• Guaranteed insurability option In effect, this rider ‘insures your insurability’ in the future. It gives you the right to purchase additional insurance(of the nature of your base policy) at different stages in your life without having to undergo any further medical examination.
• There is a free-look period during which you could return the policy if you are not happy with it. This period varies from 15 days to a month, depending on the insurer.
• You can take additional covers in the form of riders.
• There are provisions to make late premium payments with penalties.
• Understand the costs and charges on the facilities offered to you as a policyholder.
• Understand the working of the policy through its tenure, along with terms and conditions.
• Beware of ULIPs as they have high expenses and don’t give good returns either.
• Keep insurance and investments separate. Get adequately insured with a term-insurance cover, which is the best option when it comes to insurance.
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