Published in Mint on 2 June, 2015, Written by Abhishek Bondia
In case of vehicle insurance, the insurers give a no-claim bonus, thus reducing the premium payable amount, provided there are no claims in the preceding year. However, in the case of medical insurance, there is no such incentive for the customers. Why is that?
Several medical insurance policies actually give a no-claim bonus. However, unlike motor insurance, health plans generally do not give discount on premium. Instead, most plans provide additional sum assured as no-claim bonus. In fact, as compared to motor insurance, the no-claim bonus in health insurance is superior in two ways.
First, the quantum of bonus in one year can be as high as 50%. The cumulative bonus could be more than 100% of the base sum assured. Under motor insurance, the highest no-claim bonus one gets is 20%. The cumulative bonus under motor insurance cannot be more than 50%.
Second, in case of a claim under motor insurance, generally the no-claim bonus for subsequent year becomes zero. However, in several health plans, the cumulative bonus is either fully protected or reduced partly. It does not become zero.
In health insurance, at the time of renewal, the premium amount is recalculated upwards even if one has not made any claim in the past. Why is this? What kind of medical insurance cover should one take if age is around 40 years and the person gets 50-75% hospitalization reimbursements from the employer, with an objective that it might be of help after retirement?
Unlike life insurance policies, most general insurance contracts are annually renewable. In a life insurance policy, the insurer fixes a premium, which remains the same for the term of the policy. Under a general insurance policy, the risk evaluation is done only for one year, so premium varies every year.
Health insurance offered by general insurers also follows the above pattern. Since health risks increase with age, so does the premium. Some insurers increase the premium every year. Others increase premium based on age brackets (25-35 years, 36-45 years, and so on). In the case of the latter, there is a sudden jump when the bracket changes.
If you are already covered under medical insurance by your employer, you could evaluate two alternatives.
First, purchase a top-up cover. Under such a plan, an initial threshold of Rs.3-5 lakh is not covered. Any claim above the threshold is admissible under the top-up plan. You can utilize the employer health plan to cover the initial threshold. The premium for a top-up plan is a fraction of the normal plan’s premium. Second, you could take a normal ground-up health insurance plan with a low sum assured but high no-claim bonus. This will ensure that until retirement you accumulate a large cover.