8 Important Health Insurance Related Terminologies You Should Know About
With escalating medical costs and rising instances of lifestyle diseases, Health Insurance has never been as significant a part of your Financial Plan as it is today. Here are some essential Health Insurance related terminologies and features that you should acquaint yourself with while deciding which policy to buy.
While browsing for the best Health Insurance plans for your family, you may notice that there are significant price differentials between policies of different companies, offering the exact same Sum Insured. This could be an outcome of differences in underwriting processes or even brokerage structures, but when the features are the same, why should you pay more?
In case of young families where the eldest member is under 40, it may make sense to take a family floater plan rather than take up separate policies for each family member. After evaluating what’s best for your unique situation, check the difference between taking one family floater plan of say 10 lakhs, versus four individual plans of 2.5 lakhs each.
Some family floater plans may, at a slightly higher premium, allow for a magical ‘restoration’ of the Sum Insured in case the entire cover has been exhausted by one family member in a year, and a second family member falls ill, leading to medical expenses. Evaluate this feature carefully – sometimes, it’s just cheaper to take up a higher Sum Insured (say, 10 lakhs) than opt for a policy with a Sum Insured of Rs. 5 lakhs, and with a restoration benefit.
Though you may have purchased a policy with a Sum Insured of Rs. 5 Lakhs, your insurer may have incorporated a feature called ‘disease wise capping’ which might restrict the maximum payout for a specific set of illnesses to say, 1 Lakh. Make sure you know which ones these are. The higher the cap, the better – especially if you consider yourself to be at significant risk of contracting any of the capped conditions, do to your lifestyle or family history.
List of Pre-Existing Conditions
Every policy will have a list of ‘preexisting conditions’ for which they will not settle claims for a fixed period (usually 2-4 years). Make it a point to scan through this list before you buy the plan. The smaller the list, the better.
The waiting period for pre-existing conditions is usually two to four years. In addition, many policies will incorporate an additional ‘waiting period’ for specific diseases (for instance, cataract). Go for a policy that has a relatively short waiting period for pre-existing diseases.
Many health insurers will issue ‘sub limits’ on things like lodging (hospital room costs), thereby capping the proportion of expenses payable towards it. Make sure yours doesn’t. As a thumb rule, the lesser the number of sub-limits built into a Health Insurance policy, the better.
Some Health Plans will mandate that the policyholder bears a percentage of the total expenses. This feature is known as ‘co-payment’, and is a clear disadvantage. Make sure yours doesn’t require a co-payment. If it does – it’s best that the proportion doesn’t exceed 10%.
Incurred Claims Ratio
Watch out closely for the Incurred Claims Ratio (ICR) published by the IRDAI each year. This figure is the proportion of claims payouts made, as a percentage of the total gross premiums received by the insurer. Over a large enough sample size (for example, premiums exceeding Rs. 100 Crores), this number can help you draw important inference. A number exceeding 100% implies that the insurer is giving away more than it’s earning – putting its long-term business in jeopardy. A number that’s too low (say 30%) implies that the insurer is stingy with claim payouts, or that its premiums are exorbitant. An insurer with an ICR between 60% and 90% is whom you should be targeting.