The healthy approach

How much expense would an individual incur for hospitalisation between the ages of 18 and 80? Before you launch into a complex mathematical calculation to find the probability of hospitalisation due to sickness or injury during these 62 years, permit us to do a back-of-the-envelope computation. If a person buys a Rs 2 lakh medical insurance policy when he is 18 and continues with it till he is 80, he would pay Rs 3.15 lakh as premium and service tax over the course of the policy. Given the high cost of healthcare today, even a short stay of 3-4 days in a hospital can rack up a bill of Rs 1-2 lakh. If our man is admitted to hospital even twice in 62 years and is reimbursed, the policy will practically pay for itself. And we have not even factored in the tax benefits and enhanced cover as bonus during the 60 non-claim years.

While nobody would really want to get his money's worth in this manner, you can never be sure about what fate has in store. Experts say it is likely that a person will need expert healthcare during his lifetime. This is why medical insurance is as important, if not more, than life insurance. It is also far more complex because it covers a risk which is very different from that of death. Yet, only a few Indians who paid Rs 9,000 crore as premium last year for this segment of general insurance are willing to spend time and effort to understand the intricacies of their medical policies. Ask five people who have bought medical insurance whether their policy covers full expenses in case of hospitalisation. Chances are three will say yes, one won't be sure and only one out of five will be aware of the sub-limits on different heads of expenses. In most medical plans, there is a limit of 1 per cent of the sum assured per day for room rent. So, if someone with a cover of Rs 1.5 lakh is admitted to a room that costs Rs 3,500 a day, the policy will reimburse a maximum of Rs 1,500 for room rent. The policyholder pays the balance.

Unfortunately, very few policyholders are aware of this clause or other features in their medical plans. They happily believe every word that the agent tells them about what the policy can do for them. This can lead to poor statistics. Health insurance has the highest percentage of disputed claims. Only about 42 per cent of all claims are settled in full. In the remaining cases, the insurers don't pay the enitre amount because of policy exclusions or cover limits. It is said that the first health insurance claim is usually a nightmare for a policyholder. That's when all the warts in the plan come to the fore.

Who's at fault? Everybody, it seems. It doesn't help that the policy documents and promotional material are incomprehensible to the average buyer. The Insurance Regulatory and Development Authority (Irda) has advocated uniform, easy-to-understand policy clauses. "It may not be long before such measures are adopted and the number of controversies relating to policy wordings comes down," says Irda chairman J. Hari Narayan. Health insurance companies are now working on ways to simplify the language. "We are looking at various options that can facilitate better understanding and make the wording less intimidating to customers," says Ajay Bimbhet, managing director, Royal Sundaram Alliance Insurance Company.

On their part, customers need to study the policy in detail before signing up. "Customers must read the policy documents thoroughly and should not rely solely on the information furnished at the point of sale," says Bhimbet.

The DIY approach will not only prevent mis-selling but also help the buyer choose a policy that matches his requirements. For instance, if you have adequate group medical insurance from your employer, you may not need another policy. However, if the cover is low or if you intend to switch jobs, then you might want to buy one.

Some people also buy health insurance only to save income tax under Section 80D. This is akin to buying a TV just because it comes with a free DVD player. Brokers too harp on the tax benefits of medical insurance instead of explaining the features of the policy. "Tax deduction under Section 80D has gone up in successive budgets. This has also boosted the sale of medical insurance policies," points out Karthikeyan Jawahar, a Coimbatore-based financial planner.

The tax-saving trap is not the only ploy that agents use. A medical check-up waiver is another lure. Remember, honesty is the best policy when it comes to insurance. Don't think an agent is being helpful if he offers to waive a medical check-up. Hiding crucial information about your health will work against you when you make a claim. At such a time, the agent will not be around to explain why a pre-existing disease is not covered by a health plan.

Health check
Points to keep in mind while buying a medical policy:

• Sub-limits: The sky is not the limit when it comes to making a claim. All expenses have sub-limits (1 per cent of sum assured for room rent per day, 2 per cent for ICU charges, 40 per cent for doctor's fee).
• Cooling-off period: All illnesses are not covered within 30 days of taking the policy. Only injuries are covered from the time a policy is taken.
• Exclusions: Some diseases are not covered in the first two years of taking the policy. Pre-existing diseases are usually included after four years of continuing with the policy.
• Pregnancy and delivery: Some plans cover these costs, but there is also a waiting period of up to four years before a person is eligible.
• Medical check-up: Don't avoid undergoing a medical check-up. It will benefit you because it rules out the possibility of pre-existing diseases.
• Tax breaks: Don't let tax deduction under Section 80D guide your decision. This is only meant to reduce your costs.