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Who should you buy your health cover from?

Think life insurance, and term policies, unitlinked insurance policies and endowment plans come to mind. General insurance, on the other hand, conjures up images of motor and health covers.However, what you might not be aware of is some life insurers also sell health insurance policies, both indemnity and fixed benefit covers, the latter being more commonly offered. What should you opt for?

The points of distinction

Most health covers from life insurers are defined benefit plans, where a pre-fixed sum (as a lump sum or on a daily basis, depending on the product) is handed over to the policyholder once a claim is made. These could also be offered in the form of standalone critical illness covers, hospital cash policies or personal accident covers.

Some insurers also offer an indemnity-based health cover, which typically general insurers sell, wherein the expenses you incur on hospitalisation are reimbursed, up to the extent of the sum insured. So, it’s the principle—indemnity or defined benefit—rather than the primary line of the insurer’s business that should be taken into account while comparing products.

However, there are some differences between health insurance products offered by life and general insurers that you need to know of.One, health products offered by life insurers come with a premium guarantee of three years. In other words, premiums remain unchanged for three years. However, according to experts, this does not make a significant difference.

"This is not a great advantage as general insurance companies too have age-slab based premium. If you enter the slab early you may end up paying the same premium for 5-10 years," says Mahavir Chopra, Director, Health Insurance, Coverfox.com, an insurance advisory portal.

The main advantage of fixed benefit policies is that you can make a claim even if you have already been reimbursed by your general insurer’s hospitalisation cover. These policies do not demand original hospital bills and discharge summary—photocopies are admissible evidence. The lump sum amount disbursed can then be used to fund your recuperation or lifestyle adjustment expenses.

Any daily payouts will come in handy for travel, food and miscellaneous expenses. "Only 14% of expenses incurred due to major illnesses can be attributed to hospitalisation, which is covered by the conventional health plans. The balance 86% is borne by the customers themselves. This is where fixed benefit plans come in handy," says Tarun Chugh, CEO, PNB Metflife Insurance. A fixed benefit policy pays out the entire pre-defined amount once a claim is filed.

On the flipside, defined benefit policies are usually costlier than regular indemnity-based policies. Also, if you buy critical illness policies, which fall in the defined benefit category, they cease to exist once the claim is paid out.

Exercising your options

Once you choose the principle—indemnity or fixed benefit—you are comfortable with, you should carry out a cost-benefit analysis, rather than a life versus general insurance comparison. "Since there is hardly any difference in features, you should not be concerned whether the indemnity health insurance is from a life insurer or a general insurance company. You should do a cost-benefit comparative analysis over the long term and then decide," says says Chopra.

Some experts suggest that your base policy should be purchased from a general insurer, while fixed benefit plans can act as supplementary covers to take care of ancillary expenses. "First time health insurance buyers need to buy a cover issued by a general insurance company which pays the actual cost incurred at the time of hospitalisation," says Sudhir Sarnobat, CEO, medimanage.com, a health insurance consultancy portal.

Indemnity-based covers offered by non-life insurers are cheaper. Budget permitting, you can add a top-up plan sold by general insurers and then add a defined benefit policy to your protection basket to take care of expenses beyond hospitalisation.Several life insurers used to sell health products with savings component as well, but they have been withdrawn now.