When should you dump your health insurance cover?
A health insurance policy is crucial in your financial planning, but there are cases where it may not be useful.
Hikes in renewal premiums
In recent years, some senior citizens have had to deal with up to 100% increase in their health insurance renewal premiums. Faced with the prospect of not being covered at a time when they need it the most, many have continued to service such premiums. However, financial planners do not advocate this approach. “A cover with a premium-to-sum assured ratio of more than 20% is not viable,” says independent financial planner Bhakti Rasal.
You should put your policy on watch even if the premium crosses the 10% threshold. For example, if you are a senior citizen with a Rs 4 lakh cover and your renewal premium shoots up to Rs 54,000 per annum, let the policy lapse, particularly if it also comes with co-pay or room rent restrictions. “If the premium amount crosses 10% of the sum insured, study its utility before taking a call. If it goes to as high as 25%, it makes no sense,” says Suresh Sadagopan, Founder, Ladder7 Financial Advisories.
In such circumstances, you would be better off building a separate, medical emergency fund by setting aside the required amount in a fixed deposit or identifying substitutes.
Room rent sub-limits
Consider this scenario: you bought a Rs 3 lakh cover 20 years ago, when you were 45, with a room rent limit of 1% of the sum insured (Rs 3,000). The amount was enough to take care of hospital bills and get you a room of your choice. Now the premium has gone up to say Rs 22,000, and the room and hospital you prefer are of premium variety. What served you well for 10 years may not meet your requirements going forward. In this scenario, the total claim payout will be reduced heavily, as the overall charges—doctor’s fees, anesthesia, OT charges etc—are linked to the room rent category. If you have chosen a room that costs Rs 5,000, while you are eligible for a room type that costs Rs 3,000, there will be proportionate deduction of 33% on all charge heads. Therefore, if your claim amount is say Rs 1.5 lakh you might end up receiving only around Rs 1 lakh. Your total outgo, therefore, would be Rs 72,000, which does not justify a renewal. “If there are sub-limits, co-pay conditions as well as exclusions from coverage, it is a better idea to create a medical contingency corpus,” says Sadagopan.
*After 33% proportionate deduction; registration and non-medical expenses are exclusions. Illustration based on a range of premiums for a 65-year-old female.
Do ensure, however, that you do not go overboard hunting for a feature-rich policy with the largest possible sum insured only to maximise tax benefits. Ideally, a family of four, where the eldest member is under 40, should start with a cover of Rs 5 lakh and review requirements and medical inflation every five years and hike cover accordingly.
Co-pay, disease-wise capping
If you are paying a premium of Rs 35,000 for a Rs 4 lakh policy that comes with a co-pay of 20%, evaluate your cover. If your approved claim is Rs 1 lakh, the actual payout will be Rs 80,000. Your total outgo would be Rs 55,000, not factoring exclusions for registration and non-medical charges. Similarly, disease-wise cappings, too, can blunt your cover’s utility. Here, the payout for certain diseases, surgeries or charges can be restricted to an ad-hoc amount or 25-50% of the sum insured.
Higher premiums at older ages
While insurers and experts recommend buying a health policy at a younger age to ensure favourable terms and conditions, many realise the need as they grow older, or when they suffer from ailments. Insurers do extend covers to such individuals, but with prohibitively high premiums and restrictions. “If a person suffers from severe pre-existing conditions and is issued insurance with many restrictions then it may not be worth buying,” says Kapil Mehta, Co-founder, Securenow.in.
Your claim experience with your insurer also counts. “If your insurer consistently rejects your claims, it may be better to move,” says Mehta. If you are facing an insurer-specific challenge, port to another if a better deal is being offered. There are other options in addition to creating a health contingency fund. “Instead of regular health insurance, go for a critical illness or a cancer plan. At least one expensive disease is covered. You could also buy top-up insurance if the base policy is too expensive,” says Mehta. Top-up add-ons come into the picture only after a pre-agreed amount is exhausted. The decision to let go of your policy should be taken carefully after exhausting all other options. Once lapsed, it will not be easy to sign up for another. “Health insurance is the perfect tool as it is a yearly contract and comes with guaranteed lifelong renewal. It has the ability to act as the perfect wealth protector in one’s portfolio. Any size corpus would get exhausted while the cover gets renewed every year,” points out Ravi Vishwanath, ED and CEO, Reliance Health Insurance.