Top Up and Super Top Up Health Insurance: Know the key differences

One of the most important aspects of financial planning is having your risks covered. There are primarily two types of risks when it comes to an individual.

1. Risk of death
2. Risk of hospitalization

First part can be covered with the help of a term life insurance policy. Term insurance is a product that pays off a certain amount to the nominee of a deceased person. We have already discussed everything about term insurance in our series of articles on this topic.

Risk of hospitalization can be covered with the help of health insurance. We have discussed the importance of buying a comprehensive health insurance policy in our earlier post.

Like every risk management product, health insurance is also treated as a cost & often ignored until we actually face the cost of hospitalization. Also in case of salaried individuals having a corporate health cover, the personal health insurance is overlooked.

One more reason that we often get to hear is that the cost of health insurance policy is high. There are ways to boost your coverage at a lower cost.

In this article, we are going to talk about two lesser known insurance policies that can help you boost your cover at a reasonable price.

Top-ups and Super top-ups work as a booster to your base health insurance plan that can help you get a higher sum insured at a reasonable cost. This booster comes with a ‘deductible’ - which is the amount after which these plans start paying. Usually, the deductible is your base-plan amount, so, as soon as the base-plan is exhausted, (or the deductible is crossed) the booster is activated. You can buy the top-up or super top up either from your existing health insurance company or any other company also.

An interesting thing to note here is that there is no compulsion on having a base plan in the first place, you can also treat the insurance provided by your employer as the base plan and buy a top up or super top up above that base plan.

Example: If your employer has provided a health cover of Rs. 5 Lakhs, then you can buy a top up or super top up by taking this Rs. 5 lakhs as a deductible. This simply means that in case if a claim is triggered, then first you will have to exhaust Rs. 5 lakhs from the employer & then the top-up gets activated.

Now, since there are two concepts here viz. top up & super top up, let's decode each of this individually to understand the features and differences.

A top-up’s deductible is calculated based on every single hospitalization. It gets activated and starts paying only if the expenditure on a single hospitalization bill crosses the deductible limit. let's understand this with help of an example:

Mr. A has a base policy of Rs. 10 lakhs & takes a top-up of Rs. 40 lakhs with a deductible of Rs. 10 lakhs.

Following are the scenarios:

Hospitalization 1: Hospitalization bill is Rs. 6 lakhs

In this case, the base policy will settle the claim & top up will not be triggered.

Hospitalization 2: In the same year, another hospitalization bill is Rs. 6 lakhs

In this case, the base policy will pay Rs. 4 lakhs & Mr. A has to pay Rs. 2 lakhs from his pocket (since the single bill hasn't crossed the base limit of Rs. 10 lakhs)

Hospitalization 3: In the same year, another hospitalization bill is Rs. 12 lakhs

In this case, the base is already exhausted. Hence the first Rs. 10 lakhs will have to be paid by Mr. A & then the top-up is activated & top-up pays Rs. 2 lakhs. (Since the single bill has crossed the base limit of Rs. 10 lakhs)

Next option is buying a super top up, Super top-up’s deductible is calculated based on the sum of all hospitalization expenses incurred during the entire year. Once the sum of costs paid across admissions crosses the deductible, the super top up gets activated.

In continuation with the above example, let's assume Mr. A bought a super top-up of Rs. 40 lakhs instead of a top-up.

Following are the scenarios:

Hospitalization 1: Hospitalization bill is Rs. 6 lakhs

In this case, the base policy will settle the claim & super top up will not be triggered.

Hospitalization 2: In the same year, another hospitalization bill is Rs. 6 lakhs

In this case, the base policy will pay Rs. 4 lakhs & super top up will pay Rs. 2 lakhs. Since the sum of all the hospitalization bills incurred during the year has crossed.

Hospitalization 3: In the same year, another hospitalization bill is Rs. 12 lakhs

In this case, the super top up will pay the entire claim of Rs. 12 lakhs.

It should be pretty clear by now that a super top-up is a much superior product that can take off multiple small bills also if the hospitalization occurs multiple times in a single year. Super top up costs a bit higher but they cover all the bills once the base plan is exhausted.

One thing to note is that when you have hospitalizations with large bills in each of them, both super top up and top up work in the same way. The major difference comes in when you have several, smaller bills - where super top ups are superior.

It is suggested to consult an insurance advisor in order to understand which one suits your needs in a better manner before proceeding to buy them.

CA Rohit J. Gyanchandani is Managing Director, Nandi Nivesh Private Limited, A Pune based Wealth Management Company.