Health Insurance – Life or Non-Life

Health Insurance is a necessity today. With ballooning medical cost, the impact of immediate hospitalization is far from ordinary. If not planned the hospitalization expenses can drag anyone few years behind and at times wipe out all the hard earned savings.

But with life insurance agents approaching people with their health products also, choosing a viable Health Insurance scheme has become a difficult task for buyers. Many of them get attracted to the combo kind of products without looking at their requirement. However, one need to analyze the features and difference between products from LI & GI companies to know which best matches ones requirement.

Here is a brief review of the difference between health products from these two segments of insurance industry:

1. General Insurance: Health Insurance products from GI companies are on the basic principle of indemnity. These are reimbursement plans where the claim is settled by the company on the basis of cost of hospitalization. These companies, in tie up with hospitals also provide cashless facilities to the policyholders.

There are different products in this space with some having certain sub-limits on the amount of claim in respective categories while some do not have any sub-limits.

2. Life Insurance– Health Insurance  products from these companies are majorly defined benefit plans where on the diagnoses of a specified illness the company pays a pre-defined amount to the policyholder. Most of the health products here provide daily cash benefits along with a fixed coverage on some specified surgeries or critical illness. LIC Jeevan Arogya, LIC Health Protection, Bajaj Health Care or ICICI  Hospital Care II are family of such products. However, ICICI Pru Life Health Saver stands different from these as it covers the basic hospitalization costs much like GI policies.

The Difference

The products from these two segments have good amount of difference to consider:

1. Tenure: The health products from general insurance companies are annually renewable although some companies have a two year term. But the product can be renewed life-long. In comparison to this products from life insurance companies are of minimum 3 years term and go even up to 20 years. A product like ICICI Health saver even provides renewability up to age 75 years of age. Thus, life insurance companies have a fairly long fixed horizon in their health products but no life-long renewability option.

2. Premium: The premium in general insurance companies is same in a certain age bracket e.g. 25-30 or 30 -35. Generally, this segment revises its premium rates every 4-5 years. However, if one has taken a policy and after one year the company revises its premium rate then the policy holder will have to pay the increased premium. Contrary to this in life insurance, the premium is for the term and remains constant. If company wishes to revise it in between then IRDA approval is mandatory.

3. Investment Option: All health products from life insurance companies have investment options-either traditional or ULIPs. The objective is to give benefit of accumulating for a health corpus to the insured. But then much like other Life Insurance products, all these options have charges associated which policyholder has to bear.

4. TPAs: Life insurance companies mostly have claim settlement through TPAs which is not the case with general insurance where companies are slowly moving to in house claim settlement. The claim processes through TPAs have been very much criticized in last few years due to the hassle policyholders have to face.

5. Claim Settlement: Since health insurance products in life insurance are defined benefit products the claim is settled only through reimbursement after submitting the necessary bills. Due to this reason there may not be a need of tying up with hospitals. This is not the case with general insurance products where they tie up with hospitals to provide cashless facility. And in hospitals which are outside the network one can take reimbursement of the hospital expenses. The exception in this case is ICICI Health Saver which is providing cashless facility too.

6. Portability: This was introduced in 2011 by IRDA and is applicable only with general insurance. The primary reason for this is that products from life insurers have longer tenure and are majorly mix of investments. Since portability requires review of underwriting terms and some features can be discontinued, it is not workable with life insurance products.

Which one should you Consider?

As revealed, Health Insurance Products from life insurers are mainly defined benefit plan which are more suited for meeting additional cost ones family bear during hospitalization. But such products become considerable only when you have covered yourself for basic hospitalization expenses, for which general insurance policies are more comprehensive. However, even GI companies have come out with defined benefit plan which are fairly attractive. Although, companies like ICICI are competing in general mediclaim space also by providing basic health products, they still are in combo with investment options.

The basic principle of financial planning is to keep insurance and investment separate as both have different objectives to meet.  One should first cover self for basic health requirements and choose the product that meets only this criterion. If accumulating health corpus is the need, then look for options which are cheaper and more efficient.