How Does Top-Up Health Insurance Work?

Medical emergencies, more often than not, always spring up when you least expect them, and they can leave a gaping hole in your bank balance. To top it all off, according to Aon's Global Medical Trend Rates Report, India's medical inflation is at 13% (up 1% from 2024 and 3 percentage points higher than the global average).

Piyush Jain, Co-founder and CEO of ImpactGuru, has succinctly laid out this harsh reality in a few words: "India's middle class is one hospital bill away from poverty." While having a basic insurance policy does cushion the financial blow to a certain extent, in most cases, it's just not enough, given the current circumstances. 

This is where top-up health insurance policies come in. They allow everyone, from salaried professionals and families covered under employer-provided plans, to anyone with a basic insurance plan, to increase their medical coverage without incurring high premiums. This blog will tell you everything you need to know about them. 

What Is A Top-Up Health Insurance Plan?

To put it simply, a top-up health insurance plan is a type of insurance policy that can work either as an add-on to your existing policy or as a stand-alone policy in its own right. These policies kick in only after your medical expenses cross a particular limit called a deductible, and as is the case with any insurance plan, come with a sum-insured figure.

So, how does top-up health insurance work in a real-world scenario? Assume you have a basic insurance policy that covers you up to 5 lakhs. You feel this isn't enough, so you opt for a top-up policy that provides an additional cover of 10 lakhs with a deductible of 5 lakhs. Your total medical coverage will now be the following:

• Base Policy Sum Insured: ₹5 Lakhs.

• Top-up Policy Coverage: ₹10 Lakhs.

• Top-up Policy Deductible: ₹5 Lakhs.
  

Now, remember that the deductible is the minimum threshold that your expenses must exceed for the top-up policy to take effect.  The following table outlines how this policy will pay out in various scenarios with the above combination of policies.

Total Medical Bill	Policy Combination	What base policy covers?	What top-up policy covers?	Out-of-pocket expense	Total Covered By Insurance
3 lakhs	Base + Top Up	3 lakhs	0	0	3 lakhs
3 lakhs	Top Up Policy Only	NA	0 (Because the min-threshold was not met)	3 lakhs	0
8 Lakhs	Base + Top Up	5 Lakhs	3 lakhs	0	8 lakhs
8 Lakhs	Top Up Policy Only	NA	3 lakhs	5 lakhs	3 lakhs
15 lakhs	Base + Top Up	5 lakhs	10 lakhs	0	15 lakhs
15 lakhs	Top Up Policy Only	NA	10 Lakhs	5 lakhs	10 Lakhs

The Key Components Of A Top Insurance Plan

If you are unfamiliar with the world of health insurance, here is a simple breakdown of the key components of a top-up health insurance plan.

• Base Cover: This is your primary health insurance policy. It pays for medical expenses up to the sum insured under that plan. A top-up plan typically kicks in after this coverage is exhausted or when expenses exceed the deductible.

• Deductible: This is the threshold amount. Your top-up plan will only activate once your medical expenses exceed the specified amount. You can pay this through your base policy or out of your pocket.

• Sum Insured (SI): This is the maximum amount the insurer will pay under the top-up policy. It does not include the deductible. 
  

What Are The Types Of Top-Up Plans?

There are two types of top-up plans available on the market today:

Regular Top-Up Plans

Regular top-up health insurance plans apply the deductible to each claim individually. Continuing with the above example, if you have been hospitalized twice within the policy period and your medical bills are 3 lakhs and 5 lakhs, the top-up policy won't cover either of them, as the threshold has not been exceeded in either case. In short, each claim is treated in isolation, even if your total expenses for the year cross the deductible.

Super Top-Up Plans

Super top-up plans address the coverage gap that a regular top-up plan leaves. With these types of policies, the deductible is calculated on a cumulative basis for the entire policy year. Sticking with the same scenario, with one of these plans, your medical bills of 3 and 5 lakhs are combined. The base policy covers the five lakhs, and the super top-up policy covers the remainder of the three lakhs.

In essence, the "top-up vs super top-up health insurance plan" debate comes down to this: if you do not foresee multiple hospitalizations, you can stick to a regular top-up plan; otherwise, a super top-up plan should be your choice. 

Why Consider a Top-Up Plan?

Top-up health insurance plans are the most cost-effective way to increase your coverage. Simply put, you pay much lower premiums for a significantly higher increase in your coverage, in contrast to the premium you will pay to increase the sum insured of a base health insurance plan.

To put this into perspective, a ₹15 lakh base health insurance policy may cost around ₹22,000 per year. On the other hand, a ₹5 lakh base plan combined with a ₹10 lakh super top-up health insurance plan typically costs around ₹14,000 annually. The result is that you get the same coverage with significantly lower premiums.

A top-up health insurance's benefits don't just end there. The premium you pay towards these plans also qualifies for tax deductions under Section 80D of the Income Tax Act.

How Claims Work in a Top-Up Plan?

The claim process for a top-up health insurance plan depends on whether a base policy is in place. If the policyholder has a base plan, the insurer covering that base policy pays the claim amount up to the sum insured. Any amount exceeding the deductible is then processed by the top-up insurer, subject to policy limits and terms.

In the absence of a base policy, the policyholder must bear the deductible amount directly. The top-up insurer becomes liable for the remaining eligible expenses once this threshold is crossed.

When both policies are held with the same insurer, claims are usually settled in a single process. If the base and top-up policies are with different insurers, claims must be filed separately with each provider, along with the required documentation for each. The payout is made only after the deductible condition is fulfilled as per the terms of the top-up plan.

What to Check Before Buying a Top-Up Insurance Plan?

The following are the key factors you should evaluate before buying a top-up insurance plan:

• Deductible amount - The deductible amount should be similar to your existing base policy. If the value is higher, you will have to pay out of pocket to cover the difference. If you are going to use a top-up health insurance policy as a stand-alone policy, make sure that you can comfortably cover the deductible limit. 

• Deductible Structure - Verify if the plan uses a per-claim or annual cumulative deductible structure. This will impact your coverage in the event of multiple hospitalizations. 

• Sub-Limits - Read the fine print to check if the plan has caps in place for factors like room rent, certain treatments/surgeries, and post-hospitalization expenses. 

• Pre-existing coverage along with their waiting periods - Verify if the plan covers your pre-existing conditions and if there are waiting periods associated with them. 

• Exclusions - Review the policy document to determine what is not covered under the plan.
  

Conclusion

Unexpected medical costs are not only financially stressful but also mentally taxing. If you are relying on the limited coverage that corporate plans provide or have senior citizens depending on you, having adequate coverage is non-negotiable. Top-up and Super top-up health insurance plans help you achieve this at a fraction of the premium when compared to a base plan offering similar coverage, and there is no better time than now.

The Way Forward 

Get in touch with the top-up health insurance experts at AssetPlus for proper insurance guidance.

FAQs

Can I buy a top-up health insurance policy without a base policy?

Yes, you can buy a top-up policy as a stand-alone plan. However, it will only provide coverage once your medical bills exceed the deductible amount. In the absence of a base policy, you must pay the deductible out of your pocket before the top-up cover kicks in.

Is there a waiting period for pre-existing diseases in top-up plans?

Yes, like regular health insurance policies, top-up and super top-up plans usually come with a waiting period for pre-existing conditions. This period typically ranges from 2 to 4 years, depending on the insurer. It's crucial to check the policy terms before purchasing.

What happens if I switch insurers - will my deductible or coverage get affected?

Switching insurers doesn't affect your deductible or sum insured as long as you choose a top-up plan with similar terms. However, any accumulated waiting period benefits may not carry over unless the new insurer allows portability of such benefits. Always confirm portability terms with your new provider.