Health insurance top-up policy considerations

Notes

• A top-up health insurance policy provides coverage for catastrophic claims exceeding a specific threshold (e.g., ₹10 lakh).
• The strategy of using a self-funded medical corpus for the initial threshold and a top-up policy for excess costs is an alternative to a standard basic health insurance policy.
• Advantages of the top-up model include lower premium costs and reduction in administrative burden, paperwork, and pre-authorisation processes for smaller claims.
• The viability of a self-funded medical corpus depends on the individual's financial resilience, liquid assets, stable income, and ability to maintain the fund for its intended purpose.
• Risks of the top-up strategy include the depletion of the self-funded corpus in the event of recurring hospitalisations (e.g., ₹5-10 lakh claims) or chronic illnesses like cancer or kidney disease.
• Unlike a basic policy that renews the full sum insured annually, a self-funded corpus is a finite resource that does not replenish automatically.
• Large corporations often employ the risk-retention strategy of covering small losses internally while insuring against catastrophic risks to optimize premium costs.