In the last 3 chapters, we read about what and why of health insurance and common terms used in health insurance policies. In this chapter, I will explain the types of health insurance. Before understanding the types of health insurance, let me explain the very basic terms of health insurance which are absolutely necessary to understand the types of health insurance policies. I will also add the examples while explaining types of health insurance policies for better understanding.

So, let us define the basic terms first

Sum insured – Sum insured is the limit of amount upto which that the health insurance company promises to pay in case of hospitalization.

Example - You purchase a health insurance cover of 5 Lakhs today. You get hospitalized after 2 months, due to an accident and the expenses incurred in hospital are around 3 Lakhs. You will get back this 3 Lakhs from the health insurance cover which you purchased 2 months back.

Now if the hospitalization expenses are 6 Lakhs in the same case, you will get 5 Lakhs from the health insurance cover and remaining 1 Lakh need to be paid from your own pocket.

Here 5 Lakhs is the sum insured as you have purchased a health insurance cover of 5 Lakhs. So, the insurance company will cover maximum 5 Lakhs in a year in case of hospitalization. Any expenses above 5 Lakhs need to paid by your pocket for a particular year.

Premium – Premium is the amount of money; you promise to pay to insurance company for health insurance cover which is basically, the sum insured i.e. 5 Lakhs in above case.

The premium may 10,000/12,000/20,000 depending on your age, sum insured, number of members covered in health insurance policy and health conditions of individual/family members.

There are other factors like habits, place, occupations etc. which also considered while deciding your health insurance premium. For example, a smoker or a person working in a chemical factory may have to pay a higher premium for the same sum insured.

Now that we have understood the 2 very basic terms of health insurance, lets see the types of health insurance policies and how the above basic terms are useful in understanding the types of policies.

Types of health insurance policies

Individual Policy

Individual policy covers only one person i.e. an individual upto sum insured. The premium is decided as per age, sum insured and health condition of the individual.

Example – Let us say you and your wife decide to purchase an individual health insurance policy of 3 Lakhs each. Suppose one of you met with an accident and the hospitalization cost is 4 Lakhs, the insurance company will pay only 3 Lakhs, remaining amount of 1 Lakh has to be paid from your own pocket. The insurance company will not pay the extra 1 Lakh as the maximum limit of 3 Lakhs has been exhausted for an individual. Though both of you have a coverage of 4 Lakhs, the maximum coverage for an individual is 3 Lakhs, you can not use additional 1 Lakh from your spouse`s coverage in this case.

Premium in individual policy - let us say both of you are of the same age and annual premium of 3 Lakhs sum insured is 8,000/- per annum, for a normal healthy person. The premium will increase if any one of you has any lifestyle or other disease. So, the premium can vary for different individuals of same age. The increase in premium is called loading as per the insurance company terms.

The premium may increase by 10%/20%/20%/50% depending on the severity of the disease.

Family Floater Policy

Family floater policy covers the entire family i.e. the family members which are included in the policy. The premium is normally decided based on the age of the eldest member in the family, sum insured and health condition of each member of the family. The sum insured floats between family members.

Example – Let us say you and your wife decide to purchase a family floater health insurance policy of 6 Lakhs. Suppose one of you met with an accident and the hospitalization cost is 4 Lakhs, the insurance company will pay 4 Lakhs. If in the same year, there is another hospitalization bill of 1.50 Lakhs for any of the member, that too will be paid by the insurance company as the total sum insured is 6 Lakhs and the total hospital bills are 5.50 Lakhs. The sum insured in this case can be utilized by all the family members.

Premium in family floater policy – The premium in family floater policy is slightly less than individual policy. The premium will increase if any one of you has any lifestyle or other disease.

The premium may increase by 10%/20%/20%/50% depending on the severity of the disease.

The premium also increases if any of the member crosses a threshold age.

Group Health Insurance Cover

Group health insurance cover a group of individuals and their families. The most common example of group health insurance cover is the corporate health insurance policy which is provided by most of the companies to cover their employees and families. Some companies also offer to cover their employee`s parents and in-laws.

The group health insurance is also provided by some of the banks to its customers. Now a days, some of the co-operative societies also provide group health insurance cover for its members.

The sum insured can be used as individual or family floater depending on the choice of employee. If the employee has chosen to include its family and parents in the policy, the policy can be used as family floater policy or otherwise it can be used an individual policy.

Premium is decided on the basis of average age and size of the group. Lower the average age, lower the premium. Lower the size of group, higher the premium.

The main disadvantage of group health insurance policy is its renewability. There is no surety if you would be able to renew the policy with same insurer next year. This may be due to high claim ratio experienced by the insurance company. Though the employer may pitch in another company for its employer but premium may be increased for the same sum insured.

What are the advantages and disadvantages of these policies? Which one should you buy? Before moving ahead, lets understand a bit advanced terms of health insurance policies. These terms will help you to take a better decision in choosing a health insurance cover which will match your requirements.