₹5 crore coverage in ₹1000: Is it a scam? | Mint

One of my friends recently offered me a top-up insurance plan. The plan covers ₹5 crore sum assured sans a deductible of ₹20 lakh. This would cost around ₹1,000 every year. My wife and I are 40 years old, and my children are 12 and 7. Is this a real option or some kind of scam? How will an insurance company make money on something like this?

-Name withheld on request

A top-up plan is a very effective way to enhance your health insurance coverage. The cost of a top-up plan is significantly lower than that of regular health plans. The cost range you described is indeed offered in the market. However, while buying the plan, ensure that you are paying via a secured link to the insurer’s account.

The primary reason a top-up plan is cost-effective is the deductible. The average claim size in health insurance is well under ₹1 lakh. Moreover, claims larger than ₹20 lakh are rare. The insurer builds this low incidence rate into its pricing. When this policy is taken up by many users, the corpus becomes self-sufficient and economically viable.

You should note the following four points. First, a top-up plan is offered only to healthy individuals. It is unlikely that insurers would offer the plan to individuals with major pre-existing health conditions. For minor pre-existing conditions, they may issue a policy with a loading on premium. Second, plans with higher sum assured are offered to a particular age group. Third, top-up plans also carry a waiting period for specific ailments and pre-existing conditions. Fourth, premiums for top-up plans would increase with age, like regular health insurance plans.

You should certainly consider buying a top-up plan. Though the probability of a large claim seems low right now, it is rapidly growing. The medical inflation rate is higher than the regular inflation rate. With the advancement of technology, the cost of modern treatment is on the rise. It would be difficult to get a high coverage later. So, it makes sense to augment coverage when it is available.

My nephew used to work with a large multinational company. He was 35 years old. He recently died due to a heart attack. What kind of insurance benefit can we expect from his employer?

– Name withheld on request

Employers generally subscribe to a few insurance plans that would get triggered in case of employee death. First is the Group Term Life. Most reputable employers subscribe to such a plan. In case of an employee’s death, a pre-defined sum assured becomes payable to the nominee. The sum assured could be flat across the organization, graded by designation or linked to the salary. You should check the methodology adopted by the employer. 

The second benefit would be PF-linked life insurance. If your nephew subscribed to the provident fund, he would be eligible to receive the life insurance benefit under the Employees’ Deposit Linked Insurance (EDLI) Scheme. Most companies opt for a group life insurance scheme instead of the EDLI. 

Third, if the employer subscribes to a gratuity cash accumulation plan offered by a life insurer, a nominal death benefit would be payable under the gratuity life insurance plan as well.

Abhishek Bondia is principal officer and managing director at SecureNow.in