Combine base policy with super top-up, opt for policy with favourable bonus norms to manage premium cost
A recent survey by Niva Bupa Health Insurance found a high rate of abandonment of health insurance policies among young buyers. Fifty-five per cent of buyers aged 24–34 discontinue their policies within the first three years. Around 34 per cent of those who allow their policies to lapse do so because they believe they are healthy. Among those who discontinue, 33 per cent have personal loans and 17 per cent have home loans, indicating that equated monthly instalments (EMIs) and other fixed obligations crowd out insurance spending. Affordability remains the most commonly cited reason for lapse, with 46 per cent of those who discontinued naming it as a factor.
Flawed perception of no value
Young Indians often overestimate their health. “They confuse the absence of disease today with good health over the long term,” says Nimish Agrawal, director-digital business unit, Niva Bupa Health Insurance.
The tendency to underestimate future health risks is widespread. “Illnesses, infections, accidents, lifestyle disorders, and sudden surgeries can happen without warning, even at a young age,” says Narendra Bharindwal, president, Insurance Brokers Association of India.
Many youngsters regard health insurance as an investment product, which leads them to regard the premiums paid as a sunk cost if they make no claim.
Health insurance should not be treated as an optional expense, but as a critical tool for financial protection. “The lack of health insurance coverage results in high out-of-pocket healthcare expenditure in India,” says Arun Ramamurthy, co-founder, Staywell.Health.
Financial impact of illness
The financial consequences of illness extend beyond the hospital bill. They include lost wages and disruption of savings.
Young individuals in the early stages of their earning journey are especially vulnerable to health-related shocks. A hospitalisation for dengue, viral complications, appendicitis, or kidney stones can lead to significant hospital bills. A road accident involving surgery, diagnostics, implants and rehabilitation can cost several lakh. “A hospitalisation bill of ₹3 lakh to ₹5 lakh can deplete a person’s emergency reserve,” says Ramamurthy.
Even a short stay in an intensive care unit can mean a heavy financial burden. Critical illnesses such as cancer or heart failure can cost ₹10 lakh or far more.
“The average claim size for a young policyholder is around ₹1.8 lakh.” says Agrawal.
Liquidation of long-term investments due to a serious illness can delay retirement savings and other financial goals.
“In some cases, it may push individuals towards credit cards, unsecured loans, or other forms of high-cost borrowing,” says Ramamurthy. Bharindwal adds that medical expenses can create acute debt stress, especially for those already paying rent, car loans, personal loans or home-loan EMIs.
Cross waiting periods while young
Most health insurance policies have several waiting periods—for initial period, specified treatments, maternity-related coverage, and pre-existing diseases. Buying a policy early allows these waiting periods to begin while the individual is in good health. “Waiting periods are completed before treatment is needed later in life,” says Bharindwal.
Since a young buyer is less likely to have pre-existing diseases, entering the system early also results in zero or minimal exclusions.
“If a person buys insurance early, the policy is fully in force by the time health risks increase,” says Ramamurthy. Buying a policy after one has contracted a disease may result in the insurer delaying or restricting coverage or charging a higher price.
Avail tax benefits
Buyers of health insurance enjoy tax deduction on the premiums paid under Section 80D, provided they are in the old tax regime. “A deduction of up to ₹25,000 is available for premiums paid for self, spouse and children. If the insured person and spouse are senior citizens, the deduction rises to ₹50,000,” says Agrawal.
An additional deduction can be claimed for premiums paid towards insuring parents: ₹25,000 for non-senior-citizen parents and ₹50,000 for senior-citizen parents. Additional deductions are also available for preventive health check-ups.
“These deductions reduce taxable income and lower the effective cost of the premium,” says Agrawal.
Avoid premium loading, exclusions
Premium loading refers to the additional cost insurers charge when they identify higher health risk at the time of purchase. “Buying health insurance early helps avoid such loading because the buyer’s risk profile is lower,” says Agrawal.
Young buyers are less likely to have pre-existing medical conditions and can obtain cover at standard rates. Delaying the purchase, by contrast, can lead to higher premiums if the person develops diabetes, hypertension, obesity-related issues or other ailments.
“It can also result in exclusions, restrictive policy provisions, or additional medical underwriting,” says Bharindwal.
Next, let us discuss methods that can help young buyers manage the premium burden.
Combine base plan with super top-up
A cost-efficient structure is to buy a base health insurance policy and combine it with a super top-up. “A super top-up covers hospitalisation bills beyond the threshold chosen by the insured,” says Arti Mulik, chief technical officer, Universal Sompo General Insurance.
A super top-up is preferable to a regular top-up because the deductible is calculated on an annual aggregate basis. “All eligible claims during the year are added together for calculating the deductible,” says Mulik.
One individual may buy a ₹25 lakh base policy, while another may buy a ₹10 lakh base policy along with a ₹15 lakh super top-up. “The person buying the ₹10 lakh base policy with a ₹15 lakh super top-up will likely pay 30 per cent to 50 per cent less in total premium than someone buying a single ₹25 lakh policy,” says Abhishek Kumar, Sebi registered investment advisor and founder, SahajMoney.com. He adds that a standalone ₹25 lakh policy is costlier because the insurer is liable from the first rupee of claim. A super top-up costs less because it is triggered only after the base plan pays the initial ₹10 lakh.
“The deductible should be equivalent to the cover already available,” says Mulik. Policyholders should also compare waiting periods for pre-existing diseases and specific ailments across both policies. The super top-up should also provide similar benefits as the primary policy, including hospital room categories.
Choose policy with no-claim bonus
A no-claim bonus (NCB) rewards a policyholder for every year in which no claim is made. It increases the sum insured at renewal without any increase in premium.
“Most health insurance policies reward claim-free years by increasing the sum insured by a specific percentage without charging an additional premium,” says Mulik. Some products increase the sum insured irrespective of claims. Only a few policies offer a discount on the renewal premium.
While the annual premium remains stable or rises with age, the total sum insured grow over time due to the NCB. “This could reduce the per-unit cost of insurance,” says Kumar.
Policyholders should check the annual percentage of the no-claim bonus, which may range from 10 per cent to 50 per cent. “They should also verify the maximum cap up to which the sum insured can be enhanced,” says Kumar. In some products, the maximum increase may be as high as 500 per cent over the policy’s lifetime.
It is equally important to understand what happens to the accumulated bonus when a claim is filed. “Many policies reduce the accumulated bonus significantly after a claim,” says Kumar. Some premium plans, however, do not do so.
Use monthly premium option
Monthly premium options can improve affordability by spreading the annual premium across smaller payments. This can reduce the immediate financial burden on young policyholders balancing EMIs and other expenses.
“However, even one missed instalment risks policy discontinuation,” says Shilpa Arora, co-founder and COO, Insurance Samadhan. Policyholders using this option should mandate Electronic National Automated Clearing House (eNACH) payments to ensure timely payment.
Benefit from wellness discounts
Insurer-led wellness programmes include step tracking, fitness routines, regular health check-ups, and preventive care initiatives. Young policyholders can participate in them to earn reward points or discounts. “Wellness benefits can reduce renewal premiums by around 5 per cent to 10 per cent,” says Arora.
Consider multi-year premiums
Policyholders can pay premiums for up to three years upfront. Multi-year payments often come with discounted pricing and protect policyholders against premium increases during those years.
“However, policyholders should be confident about both the insurer and the policy before opting for a multi-year payment structure,” says Arora.
The writer is a Mumbai-based independent journalist
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