What are top-up insurance plans and who can avail it?

Buying a health insurance policy is one of the most important aspects of any financial plan. It ensures that your family is secure in case of an emergency situation of hospitalisation. In India, health insurance is still not considered a necessity. People are ignorant of the fact that there could be a medical emergency in their lives which could create a serious strain on their financial resources in case they remain uninsured.

Cost of a health insurance policy is also a bone of contention for many people who think it's not worth it to have a health insurance policy. Another very common reason for not availing a personal medical insurance is that the person and family is covered under the policy offered by their employer. However, the cover offered by the employer is not a comprehensive policy & contains a lot of restrictions on multiple things that are covered in a health insurance policy.

There is a cheaper way to increase your coverage by multiple times without paying higher premiums. In this article, we are going to discuss top up policies offered by health insurance companies.

Top-up plans are like boosters to your health insurance coverage. They come to your rescue when the primary policy’s sum insured amount is comparatively low. Their biggest advantage is that these plans increase the sum insured over and above your primary health insurance plan. 

Top-up insurance plan provides insurance coverage by replenishing the sum insured up to a certain amount. Once the medical expenses cross the deductible limit, the top-up plan gets activated. Top up plans are relatively cheaper in nature & can be used to boost the cover without paying higher premiums.

Who can avail a top up policy?

Policyholders with low sum insured: If the sum insured amount of your health insurance is inadequate and does not have many benefits, you can opt for the Top-up plans for a smaller premium compared to buying a new health insurance plan.

People with no health insurance policy: There could be a probability that a person might have the capacity to pay hospitalisation charges to a certain extent from his / her pocket. A top up can still help him to pay the hospital bills if the amount goes beyond the deductible sum insured.

Corporate employees: Your employer's corporate health insurance plan may cover you, but the sum insured may be insufficient. By adding add-ons to your basic health insurance plan, you can increase your sum insured.

Senior citizens: The medical expenses for senior citizens (for example, older parents) are undoubtedly higher. Hence, the premium is higher as people grow older. The coverage increases with a Top-up or Super Top-up plan and is relatively affordable compared to a regular health insurance plan.

Let us now try to understand how the top up policy works with the help of an example:

Suppose Mr. A has a base policy of Rs. 5 lakhs with an additional top up policy of Rs. 10 lakhs, Following will be the scenarios in case of hospitalisation:

Case 1: The hospital bill is Rs. 4 lakhs.

In this case, the entire hospital bill will be settled from the base policy & the top up won't be activated.

Case 2: The hospital bill is Rs. 8 lakhs.

In this case, since the sum insured in the base plan is insufficient, the top up gets activated. Rs. 5 lakhs will be paid from the base plan & Rs. 3 lakhs will be paid from the top up policy.

It is important to note that in case of a top up policy, the single hospitalisation bill should cross the base amount to trigger the top up activation. Let's continue with the Case 1, If Mr. A is admitted to hospital again in the same year & incurs a claim of Rs. 3 lakhs, then the top up will not be triggered as the bill amount is not higher than the base sum assured.

Premium paid for a top up policy is deductible under section 80D of Income Tax Act. 1961

There is no compulsion on buying the top up policy from the existing health insurance company. You can opt to buy it from a different insurer depending upon the features & pricing.

Personal opinion: Top up policy is a cheaper option to boost your existing health insurance cover. However it is not a substitute to having a personal comprehensive health insurance policy. There are a lot of restrictions on top up policy with respect to room rent capping & capping on other treatments.

Unless there is a serious budget constraint, it is suggested to go for a higher comprehensive cover than opting for a top up policy. If you live in a metro city or any tier 1 cities, it is suggested to have a base cover of at least Rs. 10 lakhs and a top up of at least Rs. 15 lakhs over the base cover.

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