Risk Mitigation Strategies

Health insurance is a type of insurance coverage that pays for medical and surgical expenses incurred by the insured. Health insurance can reimburse the insured for expenses incurred from illness or injury, or pay the care provider directly. It is often included in employer benefit packages as a means of enticing quality employees. The cost of health insurance premiums is deductible to the payer, and benefits received are tax-free.


Health insurance plans in India today can be broadly classified into these categories:

  • Hospitalization : Hospitalization plans are indemnity plans that pay cost of hospitalization and medical costs of the insured subject to the sum insured. The sum insured can be applied on a per member basis in case of individual health policies or on a floater basis in case of family floater policies. In case of floater policies the sum insured can be utilized by any of the members insured under the plan. These policies do not normally pay any cash benefit. In addition to hospitalization benefits, specific policies may offer a number of additional benefits like maternity and newborn coverage, day care procedures for specific procedures, pre- and post-hospitalization care, domiciliary benefits where patients cannot be moved to a hospital, daily cash, and convalescence.There is another type of hospitalization policy called a top-up policy. Top up policies have a high deductible typically set a level of existing cover. This policy is targeted at people who have some amount of insurance from their employer. If the employer provided cover is not enough people can supplement their cover with the top-up policy. However, this is subject to deduction on every claim reported for every member on the final amount payable.
  • Family Floater Health Insurance :Family health insurance plan covers entire family in one health insurance plan. It works under assumption that not all member of a family will suffer from illness in one time. It covers hospital expense which can be pre and post. Most of health insurance companies in India offering family insurance have good network of hospitals to benefit the insurer in time of emergency.
  • Pre-Existing Disease Cover Plans :It offers covers against disease that policyholder had before buying health policy. Pre-Existing Disease Cover Plans offers cover against pre-existing disease e.g diabetes, kidney failure and many more. After Waiting period of 2 to 4 years it gives all covers to insurer.
  • Senior Citizen Health Insurance :As name suggest these kind of health insurance plans are for older people in the family. It provide covers and protection from health issues during old age. According to IRDA guideline, each insurer should provide cover up to age of 65 years.
  • Maternity Health Insurance :Maternity health insurance ensures coverage for maternity and other additional expenses. It takes care of both pre and post natal care, baby delivery (either normal or caesarean). Like Other Insurance, The maternity insurance provider have wide range of network hospitals and takes care of ambulance expense.
  • Hospital daily cash benefit plans :Daily cash benefits is a defined benefit policy that pays a defined sum of money for every day of hospitalization. The payments for a defined number of days in the policy year and may be subject to a deductible of few days.
  • Critical illness plans :These are benefit based policies which pay a lumpsum (fixed) benefit amount on diagnosis of covered critical lllness and medical procedures. These illness are generally specific and high severity and low frequency in nature that cost high when compared to day to day medical / treatment need. eg heart attack, cancer, stroke etc.now some insurers have come up with option of staggered payment of claims in combination to upfront lumpsum payment.


Payment options

  • Direct Payment or Cashless Facility : Under this facility, the person does not need to pay the hospital as the insurer pays directly to the hospital. Under the cashless scheme, the policyholder and all those who are mentioned in the policy can undertake treatment from those hospitals approved by the insurer.
  • Reimbursement at the end of the hospital stay: After staying for the duration of the treatment, the patient can take a reimbursement from the insurer for the treatment that is covered under the policy undertaken.


Cost and duration

  • Policy price range: Insurance companies offer health insurance from a sum insured of Rs. 5000/-[7] for micro-insurance policies to a higher sum insured of Rs. 50 lacs and above. The common insurance policies for health insurance are usually available from Rs. 1 lac to Rs. 5 lacs.
  • Duration: Health insurance policies offered by non-life insurance companies usually last for a period of one year. Life insurance companies offer policies for a period of several years.


Tax benefits

Under the Income Tax Act, under Section 80D, the insured person who takes out the policy can claim for tax deductions.

Rs.25,000 for self, spouse and dependent children.

Rs. 30,000/- for parents.


Life Insurance

Life insurance is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money (the benefit) in exchange for a premium, upon the death of an insured person (often the policy holder).


Why Life Insurance

As a result it has become essential these days for you to have one or more insurance policies. Here are some important reasons as to why you should buy life insurance:

  • Family’s Financial Requirements – If you are the only person in your family who is earning, then the family’s income will cease when you are no more. With no steady source of income, the standard of living will fall and they may not be able to meet even basic needs like education. Therefore, your life insurance Policy will come to your family’s aid during such phases of life.
  • Loans and Expenses Repayment – You may have taken a loan along with your spouse. Or you may have borrowed money from a friend for starting a business. Also, you may have just started your family and your child is still very young. In all these cases it is your spouse who will have to bear the heavy burden of paying off the loan and managing your child’s education. These are major expenses and you can help your spouse by buying a life insurance Policy early in life.
  • Draw Loans Against Insurance – Besides using your life insurance Policy amount to repay your loans, you can also use your Policy to draw a loan against it.
  • Diverse Investment Options – You can also use your life insurance Policy as a good investment option. There are various kinds of insurance policies and you can use them for different purposes. For example, retirement plans, child insurance plans, whole life insurance plans, Term life insurance plans etc. are all good life insurance policies. Except Term plans, which don’t have an investment component, all others are good investment options too.
  • Illnesses and Accidents – Life insurance policies are always a good protection tool against the financial pressure that you will face during a serious illness or accident. You can get treatment from the best hospitals without worrying about the financial burden. Ideally, all insurance policies should be purchased when you are young and free of illnesses.
  • Tax Benefits – Life insurance policies are a good way of saving tax too. Under Section 80C of the IT Act, many of the insurance schemes in India including the life insurance schemes offer tax deductions on Premium payments.


How much life insurance do you require?

Your life insurance needs depend on a various factors such as your marital status, age and gender. For instance, when you are young, you may not need a life insurance but as you grow old and your financial responsibilities get increased, you may need the best life insurance policy of high sum assured.

At the most basic level, the amount of life insurance that you need corresponds to your answers of the following questions:-

  1. What are the immediate financial expenses that your family may require upon your immediate death?
  2. How much of your salary goes towards meeting present expenses and future needs?
  3. How long would your dependents need support in case of your sudden demise?
  4. How much money would you like to save for your child’s education and marriage?


Let’s look at an example:

Gaurav is a healthy 25 year old management professional with an income of Rs. 5,00,000 p.a. Assuming his income increases at a rate of 10% p.a., while the rate of inflation is around 4%;

At 60 years of age, Gaurav’s real income would have been around Rs. 38,43,043 p.a. If Gaurav were to live till 60 years his Human Life Value would have been Rs. 85,00,000 at discounted rate of 6% annually.

However, with a Protection or Term Plan, a mere sum of Rs. 7,090 annually (exclusive of service tax & educational cess) can help Gaurav provide a financial cushion of up to Rs. 85,00,000 for his family over a period of 25 years.

A comparison of some term life insurance policies: 

Sum assured – Rs. 1 crore.