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What is Top Up Health Insurance Policy? How Does It Work?

Even though we live in the era of rising health care inflation, average ticket size of our health insurance is only Rs.3-4 lacs. This coverage is definitely not sufficient to fund the serious cases of hospitalization in today's time. Expenses can overshoot our limit. Hence, its important to review our medical insurance needs and plan for a supplementary plan to cover up the shortfall. Here, we are talking about top-up health plans that can benefit you by providing extra cover at a reasonable cost.

What is Top-up Health Insurance Plan?

Top-up Health Insurance Plan is basically an add-on plan to your regular health insurance plan or a Mediclaim from your employer. The top-up plan offers you an additional cover when you exhaust your basic cover limit. Unlike your normal health insurance plan, top-up plans come with a threshold limit and cover only single incidence hospitalization. Based on your existing policy limits, you can select the threshold limit at the time of buying a top-up plan. That means top-up plan will trigger and reimburse your hospitalization expenses arising out of single illness over and above the threshold limit. Meeting the threshold limit and single incident of hospitalization are two basic criteria of top-up plan.
Plus point is, top-up plans with higher deductibles/threshold limit are cheaper. For example, Mr. Sunil has a personal health insurance plan of Rs.5 lac for which he is paying Rs.6500 yearly premium. He would like to enhance it by another Rs.5 lac. In this case, buying a separate health plan for 5 lac extra cover would cost him around Rs.6000-7000 a year (appx. premium as of June 2017 for 30yr old). On the other hand, he can buy a top-up plan for 10 lac, that has Rs.5 lac deductibles, just at a cost of Rs.3000-4000 per year. With this, we can say a top-up plan is a sensible choice when you want to enhance your coverage limit without spending too much.
You can also enjoy the tax benefit, as premiums paid on top-up plans are eligible for income tax deductions under Section 80D of the Income Tax Act.

How does it Top-Up Health Insurance Policy work?

Top-up plans work on a cost-sharing basis. Plan gets activated only after the threshold limit of expenses is borne by policyholder, usually through a regular health policy. Let's continue with an example to understand how top-up plans work.
Mr. Sunil who has a Rs.5 lac basic cover and top-up cover for Rs.10 lac with a threshold limit of Rs.5 lac get hospitalized due to a health emergency. Now, lets take three different scenarios to understand the concept completely.
  • Scenario 1: He makes a claim for Rs.4 lac. Expenses will be reimbursed by basic health plan which covers him up to Rs.5 lac.
  • Scenario 2: He makes a claim for Rs.9 lac. In this case, Rs.5 lac will be reimbursed by his regular health plan and the rest Rs.4 lac will be covered by the top-up plan.
  • Scenario 3: Claim amount is Rs. 11 lac. In this case, first 5 lac will be covered by his basic plan and another Rs.5 lac (Rs.10 lac – deductibles of Rs.5 lac) will be covered by the top-up plan. The rest Rs.1 lac has to be paid out of his pocket.
As we already know, top-up plans cover only single incidence of hospitalization. Suppose, Mr. Sunil has two bills to claim each with Rs. 3 lac, then top-up cover cannot be used as any of the bills are above the threshold limit.
  • Both your basic health plan and top-up health plan can be claimed together for a single incidence of hospitalization. Also, you can have your basic health plan and Top-up plans from two different insurers. There is no application of contribution clause; each insurer will settle his part of claim separately.
To conclude, top-up plans are the best choice to bridge the potential gap in the coverage as it helps in enhancing your health insurance limit at a reasonable cost. However, do check the various criteria such as limits on expenses, waiting period for pre-existing illness pre and post hospitalization expenses and also the criteria for deductible on single illness.

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