Financial Planning: A Note on Top-up Plans in Health Insurance

While undertaking financial planning, an individual also needs to consider purchasing an adequate health insurance policy. Before purchasing a policy, it is important to understand what differentiates a base health insurance plan from a top-up plan.

A base or basic primary health insurance plan is a policy that covers an individual against any medical exigency. It is formulated in a way to offer financial coverage against various healthcare expenses up to a particular pre-determined amount. The health insurance policy gives coverage for hospitalisation and related treatment costs incurred up to the sum insured amount that an individual may have opted for.

Similarly, a top-up plan is an extended cover, which is over and above an individual’s existing base health insurance plan. A policyholder is assured of an additional sum insured amount which can be utilised in a scenario where they have completely exhausted the current coverage of the basic insurance plan.

Top-up health plans are purchased over and above an individual’s existing base health insurance policy. It needs to be noted that top-up health plans cannot be purchased independently.

Considering that medical expenses have been on the rise significantly, opting for an insurance policy with a top-up plan is a prudent move. This way, an individual is ensured of raising the sum ensured amount above their base primary health insurance plan.

For example, let’s say, an individual purchases a health insurance cover of Rs 6 lakh, which covers him/her and their family consisting of spouse and children.

Now, knowing that a standard cap of Rs 6 lakh would be insufficient to meet a more significant health emergency, the individual looks forward to extending the limit by Rs 10 lakh.

An individual has two options in this case: Either purchase a new health insurance policy that provides cover worth Rs 10 lakh (the premium for the policy may be, say, Rs 10,000), or they may ask the insurance company to upgrade the cover from Rs 6 lakh to Rs 16 lakh.

An additional approach could be to ask the insurance company for a top-up cover of Rs 10 lakh on the existing policy. In this case, the premium would be comparatively lower than the new one, say, Rs 7,000, or the upgrade option.

Now, an individual has a basic health insurance cover of Rs 6 lakh and a top-up plan of Rs 10 lakh. In case an individual or a family member is required to undergo any medical procedure and incur an expense below Rs 6 lakh, the base health insurance will cover the costs. In a scenario where the medical bill is on the higher side, let’s say, about Rs 9 lakh, the top-up plan could suitably cover the additional Rs 3 lakh.

However, before opting for a top-up plan, a policyholder should check that there is no duplication in terms of benefits offered by the primary health cover.