Understanding the Role of Top-Up Plans in Reducing Medical Expenses

Yes, you do have options like upgrading the existing plans or investing further in a new policy. However, both are quite expensive and may be cumbersome with age. Top-up plans have become cost-effective solutions in such situations as they allow an increase in the sum assured at an affordable premium amount.  

How Do Top-up Plans Work? 

Unlike a normal health insurance plan, top-up plans include deductibles or threshold limits. Top-up plans come into play when your hospital bills exceed the medical insurance claim cleared by your insurance provider. An additional claim can then be filed based on the top-up policy amount for the same hospital bills for the treatment delivered. Hence, a top-up amount covers medical costs beyond the basic specified limit. It can be defined as a backup plan which comes into play once you have exhausted your sum insured limit.  

The major difference between a top-up plan and a normal health insurance plan is the deductible or threshold limit, which needs to be opted for during the purchase. Only if your threshold limit (the base policy limit) is exhausted can you use your top-up amount.  

For example, if you have a top-up plan of 10 lakhs sum assured and you have chosen a deductible or threshold limit of 3 lakhs, the policy will only cover charges beyond 3 lakhs. If you have a claim of 7 lakhs, the provider will fulfil your claim till 4 lakhs (7-3 lakhs). Whereas in a regular premium plan, the entire amount of 7 lakhs will be paid, but the premium will be much higher. For multiple hospitalisation cases in a year, you can also go for super top-up plans.  

Selecting An Ideal Deductible:  

This is introduced by insurance providers in top-up plans to ensure the claim raised is genuine and not unnecessary. It acts as a deterrent to raise small, petty claims just because of the coverage available. Your premium amount may be quite low, but the amount deductible will be much higher, and you may also lose out on a no-claim bonus. It pushes you to raise only in case of a dire emergency and not during exigencies which are manageable.  

A deductible can be compulsory or voluntary. As the name suggests, formar is strictly governed by the insurance provider. A voluntary deductible is the amount that you can opt for out-of-pocket payment in case of a medical claim. It is especially helpful if you are keen to go for a low-premium health policy. A cumulative deductible applies to a family floater plan where it is imposed on all members covered under the plan. 

Significant factors that influence deductible amounts should also be considered while deciding on the trade-off between deductibles and premium amounts :  

• The amounts available to choose from vary widely depending upon the plan types and the insurance provider across the market. 
• Age is also a primary factor ,as deductibles tend to increase with age. Senior citizen policies have mandatory deductibles due to higher possibilities of illness and pre-existing medical conditions.  
• Higher coverage levels are often followed by higher deductible amounts. 
• Sometimes, insurance providers may offer deductibles depending on whether the facilities are availed at a network hospital or out of it. 
• Deductibles may also vary as per geographical location as treatment costs vary in rural, urban and semi-urban cities.  
• The structure of policy can also impact the deductible amount as some policies may have different deductibles for different services like prescriptions, ambulances or mental health services.  

Cost Vs Benefits Trade-offs  

This may sound simple, but it will baffle you once you are in the process of deciding between various top-up plans available. You may want to go for a lower premium, but the coverage might not be sufficient, especially if you have a family floater plan. Similarly, if you think you want the insurance provider to cover the majority of the medical expenses but are willing to bear the premium cost, you may prefer lower deductibles. But how do you balance?  

A higher deductible top-up plan typically comes with low premium options, which undoubtedly look quite lucrative. But you may choose this option under circumstances when you are healthy and young and do not preempt frequent hospital visits. If you have some emergency funds stacked to take care of emergencies, you may also like to go for higher deductibles. Moreover, if your monthly income can only support regular low premium payments, it is a better option than not having coverage at all.  

Low-deductible top-up plans should be your choice if you are a family man with children and senior parents and need frequent hospital visits. If you or your family member has any chronic illness or history of any lifestyle disease, you may also anticipate higher medical costs in future and ideally go for lower deductibles with a higher premium. However, you need to ensure steady financial income to avoid payment failures and policy lapses.