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Everything about Top Up Health Insurance Plans

Top Up Health Plans

What are Top Up Plans?

Also known as Deductible Plans, Top Up Health Plans provide a cover over and above a certain base cover. This base cover in most cases come from existing policies. Some Top Up Plans allow deductible options even without an existing insurance policy.

In cases where there is an existing insurance policy, reimbursement against any claim that arises will first be made out of the existing policy. The liability of the Top Up Plan arises only after the set threshold of the existing plan has been exhausted.

In cases where there is no existing policy and the Top Up Plan permits such a situation, expenses up to the threshold level has to be borne by the insured out of his or her own pocket. The liability of the Top – Up Plan arises only after the set threshold has been exhausted.

Example 1:

Ajay has a health insurance cover from his employer of 8 lacs. He purchases a top up plan for 10 lacs with a deductible of 3 lacs. An unfortunate event of hospitalization generates a claim of 9 lacs. Ajay can use either of the following options:

Option 1: Raise a claim of 8 lacs against the employer health plan and balance 1 lac against the top up plan

Option 2: Raise a claim of 3 lacs against the employer health plan and balance 6 lacs against the top up plan

So basically, the top up plan gets activated only when the deductible threshold is crossed.

Example 2:

Vijay does not have any existing health plan except a top up cover of 10 lacs with a deductible of 1 lac. He gets hospitalized and has to raise a claim of 3 lacs. In this case, Ajay will have to pay the initial 1 lacs from his own pocket and the Top – Up Plan will consider only balance amount of 2 lacs for claim settlement.

Why are Top Up plans useful?

These plans are useful for two simple reasons:

  1. A high coverage is available at a significantly low premium
  2. In an event of a medical emergency where the amount of expenses tend to spiral beyond the usual ranges, these plans come to rescue

Who should buy Top Up Plans?

  1. Salaried people who have a basic corporate cover – Smaller hospitalization claims can be covered by the corporate cover and in case of larger expenses, Top Up Plans can be utilized. This also means that post retirement, claims up to the deductible amount will have to be either self – funded or funded through a Base Insurance Plan. However, since deductibles are pre-decided, the same can be set aside as an emergency fund.
  2. Salaried people who plan to change jobs or start on their own – Top Up Plans are an excellent option in this case. The cover and the low cost premium continues irrespective of whether you are salaried or get into entrepreneurship.
  3. People who have sufficient resources for covering up small ticket emergencies – These people can leverage the low premium Top Up Plans to cover themselves for any eventualities
  4. People who have a Base Insurance Plan with a basic cover amount of 5-10 lacs – In cases of severe medical emergencies such as complicated surgeries, the amount of expense usually shoots beyond the normal cover that we usually have. Especially if the treatment is being carried out in one of the plush city hospitals! A Top Up Plan is the umbrella for such unannounced rainy days.

Which are the best Top Up Plans?

Most Insurance Companies now offer top Up Plans. However, one has to select the plan which has the most suitable features and has a low premium. Email us on contact@cagrfunds.com to ask us for the best Top Up Plans.

Why should people with Corporate Insurance cover still have a separate health plan?

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I don’t like negative returns on my investment. What should I do?

What to do for safe returns?

Investors are just humans and every human is a different personality. And hence, our appetite to be able to see our money go up and down might vary as well. And what we want to do with our money is a very personal decision. So it is perfectly okay if you are an investor who hates to witness the volatility that equities bring on the table. This means, that you prefer certainty in life more than the worry about whether your negative return will turn positive ever again. Basically, you are a debt investor.

Saying no to equities is fine, as long as you know the trade-offs.

  • Your returns will at best match inflation, debt instruments are unlikely to give you inflation-beating returns now and forever
  • Hence, to accumulate the amount of corpus that you may need for financial independence may necessitate you to earn more as your invested money can only work to protect your capital (in the best case scenario)
  • Debt Mutual Funds can also suffer losses in rare cases. This generally happens with funds which have high credit risk on their portfolio

But Debt Funds do come with advantages that are more in sync with your investment philosophy:

  • Returns are fairly consistent (The degree of volatility is much lower than equity)
  • Depending on the funds you select, you can have complete liquidity of capital. So you can withdraw whenever you want without any charges
  • Debt FMPs or Fixed Maturity Products which have around 3-year lock-in, provide slightly higher returns than other debt funds which do not have a lock-in. Add to that the benefit of low or negligible taxation due to indexation benefits.

At this juncture, you might be quite disappointed with the fact that there could be losses in rare situations and you still don’t get to escape volatility. You must be telling yourself a 100 times that the good old FDs are still the best solution. But hold on. Is your Fixed Deposit making you wealthier? Read here to find out.

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Will Debt Funds help you create wealth?

debt fund and wealth creation

Debt funds are good investment vehicles to protect your capital and still earn more than your bank interest, but they may not sufficient to help you generate enough wealth to achieve financial independence.

Let us understand this by an example.

Assumptions:

  1. A 30-year-old salaried employee has a current monthly income of INR 1.5 Lacs
  2. Annual Salary increment: 8%
  3. Annual Expenses: INR 1.15 lacs (Rent: 60K, Grocery: 20K, Child Education: 20K, Medical: 5K and Travel: 10K). The inflation rate for each is as follows: Grocery: 6% | Rental: 10% | Medical: 12% | Education: 10%
  4. The balance is saved in a combination of debt instruments which give the returns as follows: PPF: 7.6% | Bank Savings: 3.5% | Debt Funds: 7.0%
  5. The weighted average rate of return is around 6.7% annually
  6. Annual compounding of returns assumed
  7. Assumed no taxes on gains on investment

So let us see how your expenses increase for the next 30 years vis-à-vis your debt investments.

When will you run out of money?

As you can see, your expenses will outlive your income from Year 22 onwards and that is when you will start dipping into your debt savings which will start declining thereon. And this happens while you are still working. You can well imagine what should happen once your recurring income drops or becomes negligible post your retirement.

We often ignore the impact of inflation on our lives and hence, the above is a very common “kahaani ghar ghar ki”. Therefore, even in the best case scenario, debt funds will perhaps help us match inflation but not create additional wealth that can make us live through our retirement comfortably. And this is the reason the majority of retired or nearly retired Indians are working out of compulsion. A lot of such people would have ideally wanted to spend their time reading or travelling or just basking under the sun on a chilly winter morning. But even after 40 years of working, they are striving to make ends meet just because our normal income flow cannot live up to the increase in expenses.

We, therefore, need to invest our savings in instruments which can considerably beat inflation. This is where equity comes into play. You may not like it but you may still have to consider it for a comfortable future. However, equity is a challenging subject for most and we tend to have an increased the fear of loss because of our own lack of understanding of which funds to invest in. Therefore, for a person who is new to equity investing, choosing the SIP mode of investing through a trusted advisor is the best route to choose.

But then why do people still invest in Debt? And where exactly should you be investing? Read here to find more.

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Should I invest in Debt Funds or Equity Funds?

Which fund to choose

Both Debt and Equity Mutual Funds are thriving in the Indian Financial Market. But which one should you as an investor choose between the two?

When are Debt Funds suitable?

  • When you want to park some surplus cash for using it within 3 years
  • For creating your Emergency Fund
  • From an asset allocation perspective (when your risk appetite requires you to invest in low volatility instruments)
  • You want to invest funds for a long period of time but the safety of capital is most important (Example: Funds of your retired parents who may need it any time)
  • You have a lot of FDs on which you are paying significant taxes

When are Equity Funds suitable?

  • When you want to create a fund for a goal which is more than 5 years away
  • When you have surplus funds which you do not need to deploy in the next 5 years
  • When your preference is to generate inflation-beating returns and you think you have the ability to survive the volatility

In short, every investor should have some debt and equity components as part of the overall portfolio. For a lot of people, the debt exposure is taken care of through PF, PPF, FDs, NSCs and other such low return instruments. But for those who are investing for the first time and do not have a certain percentage of their wealth in the debt instruments, they can look to start investing in both debt and equity funds.

How does CAGRfunds help?

At CAGRfunds, we seek to make investing simple for you. So we do not clutter your mind with complicated technical financial terms. We just ask you your objectives of investments and suggest the suitable solutions to you. We believe in developing long-term relationships with our investors and hence our focus is solely on helping you meet your financial goals. For more information, feel free to contact us on +91 97693 56440 or drop us an email on contact@cagrfunds.com