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For A Healthy Future

Having adequate health insurance is the cornerstone of a robust financial plan. But choose wisely between family floater and individual plans

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The somewhat clichéd adage “health is wealth”, possibly never held more significance than it does today. In other words, with the cost of quality healthcare having gone through the roof in recent times, a lack of good health can prove severely detrimental to your wealth. It’s not unusual to hear about a single medical emergency wiping out years of financial planning efforts, leaving hapless individuals deeply in debt.

According to a nation-wide survey on health conducted by the National Sample Survey Office, hospitalisation costs escalated 10.7 per cent per annum in urban India and 10.1 per cent in rural India, between 2004 and 2014. What this essentially means is that the same treatment that cost Rs 1 lakh in 2004, would have set you back roughly by Rs 2.75 lakh in 2014.

In view of the current circumstances, having a well-thought out health insurance strategy in place is not just a responsible step but also the cornerstone of a robust financial plan.

Shreeraj Deshpande, head – Health Insurance, Future Generali India Insurance, concurs. He says that the costs associated with hospitalisation and specialty medical treatments have become so frightfully expensive today, that it’s almost impossible to bear them on our own without necessary support from an insurance provider. “Once a major illness is diagnosed, it not only damages our health; but also, has the potential to damage our entire life,” he warns.

Having an adequate level of health insurance cover in place doesn’t just act as a cushion in times of emergencies, it also ensures that you can provide quality health care to your family when required. Nowadays, there’s a growing awareness about the woeful inadequacy of employer-provided health insurance plans, and many smart and forward-thinking individuals are choosing to purchase more health insurance themselves despite being covered under their employers’ group schemes. And rightfully so; the quantum of cover from such group policies, ranging typically from Rs 3 lakh to Rs 5 lakh per annum, is indeed far too low for a typical family of four to six individuals. As a rule of thumb, it is best to get a cover of Rs 2.5 lakh to Rs 5 lakh per family member per annum, which means a family of four should ideally aim for a composite health insurance cover ranging between Rs 10 lakh and Rs 20 lakh.

“Funding for healthcare expenses using savings is not good financial planning. Health insurance is a key element in achieving your long-term financial goals,”explains M. Ravichandran, president - Insurance, Tata AIG General Insurance.

Non-life insurance policies such as health and motor insurance work on the principle of indemnity; that is, losses are compensated for to the extent of a maximum “sum insured” value each year. When you are buying health insurance, you have the option of assigning this sum insured to yourself, or to let it“float” between your family members. This is an important decision to take.

What Works Better

Let’s assume that you have decided that a cover of Rs 10 lakh is sufficient for your family of four. You could either purchase four separate policies of Rs 2.5 lakh each, or opt for a family floater plan that has a cumulative cover of Rs 5 lakh to 10 lakh.

In the unfortunate event of one of your family members getting hospitalised and requiring treatment worth Rs 5 lakh, you would be reimbursed Rs 2.5 lakh by the insurer in the first instance, with the remainder having to come from your own pocket. In case of a family floater plan though, you would be reimbursed the entire sum by the insurer, and the combined floating sum insured on your policy would diminish by Rs 5 lakh.

Prima facie, a family floater plan does come across as a superior option, compared to taking up separate plans for each family member. By extending the combined cover across multiple members of your family, family floaters reduce the likelihood of you making payments out of your pocket, in case of an expensive medical procedure. And what’s more; the annual premium in case of a family floater plan tends to be 15-20 per cent lower than the premium for an equivalent individual plan for the same sum insured amount. This is the main reason Ravichandran is a keen proponent of the floater option. “It is better to choose a family floater plan as the premiums are lower than individual plans,” he says.

The Catch
The more family members you include in your family floater plan, the higher is the risk of your policy’s composite annual sum insured getting consumed by a single family member, leaving others high and dry in case of a repeat emergency in the same year. Keeping that in mind, your combined sum insured on the family floater needs to be proportionate with the number of family members you are including in the plan. “While taking such policies, you should consider a higher sum insured, since all family members are covered under one sum insured, which floats over the family,” advises Deshpande. In other words, while an individual policy with a sum insured of Rs 2.5 lakh may be sufficient for you alone, it becomes grossly inadequate if you allow the sum insured to float between your family members.

As a rule of thumb, aim for a floating sum insured that is at least half the sum of the requisite individual cover amounts. Going back to the previous example, if an individual cover of Rs 2.5 lakh is deemed sufficient for a family of four, you must aim for a floating cover of at least Rs 5 lakh, half of Rs 10 lakh, for the whole family. Obviously, a floating cover of Rs 10 lakh would be absolutely ideal.

If It’s A Young Family
Do note that the cost of a family floater plan hinges largely upon the age of the eldest family member. Thus, as a family grows older, the costs associated with such a plan increases. Also, worth noting is the fact that for a young family, the odds of multiple members getting hospitalised in the same year are relatively low; so, a smaller coverage that floats between members of the family would in fact suffice.

On the other hand, older families run a far greater risk of more than one family member getting hospitalised in a single year. At a certain stage, it also becomes uneconomical to continue with a floater; this pivot usually occurs when the eldest family member reaches the age of 45 or 50. Such families should opt for individual plans for the elder family members, combined with a separate floating plan for the younger members.

The Dynamics Of Loading
Bear in mind that health insurance companies apply a loading factor in case of pre-existing illnesses such as heart diseases or diabetes, leading to increased premiums. In case of family floater plans, the loading for a pre-existing condition in a family member will affect the premium for the entire family’s policy. Therefore, it makes sense to exclude members with pre-existing medical conditions from family floater plans, and get individual policies for them instead.

Plans For Aging Parents
A final word of advice — if you have elderly parents to care for, it is best to purchase individual policies for their benefit irrespective of their pre-existing medical conditions. Including them into your family floater plan will render it prohibitively expensive.

Regardless of the structure you finally settle upon, do not make the mistake of compromising on your health insurance needs. It could turn out to be a costly one.