What it is
Health insurance is a contract between an insurer and a person or group. The insurer agrees to provide specified cover in return for a payment called the premium, subject to the policy’s terms and conditions.
Hospitalization policies, the most common kind in India, are sold in two formats, according to IRDAI’s policyholder information site. In one, each person is insured for their own separate amount. In the other, a family floater, a single amount is pooled and shared by the family members.
The sum insured is the maximum amount the policy will pay in a policy period.
How it works
Individual policy
Each person has their own sum insured. If one member makes a large claim, it reduces only that person’s cover, and the others’ cover stays as it was.
Family floater
A floater is a single policy for hospitalization expenses of the entire family. It has one sum insured, which any or all insured persons can use in any proportion, up to the overall limit.
Here is an illustration with made-up numbers. Suppose a family has a floater with a ₹10 lakh sum insured. If one member claims ₹4 lakh in April, ₹6 lakh remains for everyone in the family for the rest of the policy year. The IRDAI site explains the same principle with a ₹5 lakh policy: after a ₹2 lakh claim, ₹3 lakh is left.
The site says family floaters are quite often better than buying separate individual policies. It does not say they always are, so compare your own case.
Rules common to both
- Waiting period: a new policy generally has a 30-day waiting period from the start date, in which hospitalization costs are not payable. It does not apply to emergency hospitalization due to an accident, and does not apply on renewal.
- Pre-existing conditions: these are conditions that existed before you bought the policy. They can be considered for payment only after 48 months of continuous cover.
- Exclusions: typical ones include spectacles, contact lenses, hearing aids, and pregnancy and childbirth treatment. Read the policy for the full list.
- Cashless facility: at network hospitals, the insurer pays the hospital directly through a Third Party Administrator. Costs beyond limits or sub-limits, or not covered, are yours to pay. It is not available at hospitals outside the network.
- Renewal: premium must be paid within a 15-day grace period after expiry. Cover is not available for the gap, and the policy lapses if the grace period is missed.
Premiums depend on factors such as age, medical history and claim-free years, which may earn a discount.
What it means for you
The main trade-off is sharing. A floater has one pool of money for the whole family, while individual policies give each person a separate pool. Which suits you depends on who needs cover and how large the sum insured is.
Check these points when you compare policies:
- The sum insured and how room rent and other limits are linked to it. The IRDAI site says such limits are increasingly tied to the sum insured, and that raising cover after a claim may not be easy.
- Waiting periods and the definition of a pre-existing disease.
- The list of network hospitals for cashless treatment.
- Whether claims are capped in number. Any number of claims is allowed unless the policy sets a cap, but the sum insured is the upper limit.
On tax, Section 80D of the Income Tax Act gives a deduction for health insurance premiums paid by any mode other than cash. IRDAI’s page lists ₹15,000 for self, spouse and dependent children, or ₹20,000 for senior citizens, plus an additional ₹15,000 for parents (₹20,000 if they are senior citizens). Those figures are from the IRDAI page and may not reflect the latest rules, so check the current limits and your tax regime before relying on them. You can estimate your tax with the income tax calculator.
If you want to change insurers, portability lets you move from one insurer or plan to another without losing renewal credits for pre-existing conditions. The credit is limited to the previous sum insured, including bonus.
Background
IRDAI, the insurance regulator, says everyone should buy health insurance for all family members according to their needs. It notes that healthcare costs are rising with new technology, procedures and medicines, and that a medical emergency can strike without warning.
Most insurers offer policies with a sum insured between ₹1 lakh and ₹5 lakh, according to the IRDAI page. Most non-life insurers sell one-year policies, though terms of two to five years also exist.
