A hospitalisation policy is the sheet anchor of your health insurance. When you feel the need for more coverage, you can increase the Sum Insured (SI) on your policy or you can do the smarter thing by buying a ‘top-up policy’ to complement it.

If you have a ₹5 lakh hospitalisation policy (or corporate group insurance cover with your employer) and feel you need ₹15 lakh coverage, you can enhance the SI. A more cost-efficient option is to retain your ₹5 lakh policy and buy a top-up policy with an SI of ₹10 lakh and a deductible of ₹5 lakh.

For example, you will pay ₹16,000 for ₹15 lakh SI, as against ₹10,000 for ₹5 lakh. Instead, if you take a ‘basic policy plus top-up policy’ combination, it will cost you in the range of ₹10,000 plus ₹3,000, a saving of ₹3,000.

What is a deductible?

You might have read in an earlier ‘Cover Note’ column that many policies have a deductible (also termed ‘excess’). If you have a ₹5 lakh policy with a ₹5,000 deductible, it means the first ₹5,000 of every claim is borne by you and the insurance company’s liability begins only after that.

A core feature of the ‘top-up’ policy is a high deductible. In a top-up policy, this deductible is termed ‘threshold’ as your hospitalisation cost has to cross it to make a claim. In the above example, if you have a claim of ₹5 lakh or below, your basic hospitalisation policy will make the payment.

There is one important condition though — the deductible should be crossed in a single hospitalisation. To explain: Any hospitalisation policy’s SI is valid for a year, the usual policy period. It can be used over several hospitalisations through the year. For the top-up policy to get triggered, the cost of a single hospitalisation should cross the deductible amount, ₹5 lakh in our example. In other words, if you incur ₹2 lakh once and ₹4 lakh in another hospitalisation, the top-up policy will not become operative.

If your bills add up to ₹8 lakh in one hospitalisation, then the first ₹5 lakh will come from the hospitalisation policy and the remaining ₹3 lakh from the top-up policy. If your claim goes above ₹15 lakh, then both policies will pay up to their limits and you will bear the remainder.

To get over this constraint you can take a ‘super top-up policy’, where the deductible applies over the policy period and not a single event of hospitalisation. Referring to the same example as above, if in a policy year you have a claim of ₹2 lakh in one hospitalisation and ₹4 lakh in another, the basic policy will take care of the ₹5 lakh while the super top-up policy will pay ₹1 lakh (2+4-5).

If your basic policy is ₹5 lakh, then the deductible under your top-up or super top-up policy should also be ₹5 lakh.

If the deductible is ₹6 lakh then you are uncovered for ₹1 lakh and if it is ₹4 lakh, you have an overlapping cover for ₹1 lakh, which can be claimed only from one or the other policy and not both, as claims are against bills.

(The writer is a business journalist specialising in insurance & corporate history)