Individual Health Insurance Plan Vs. Family Floater Health Insurance Plan

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Introduction

Vivek Gupta is a 35 year old individual (married and has a 6 years old daughter). He buys an individual health insurance plan for himself with a sum assured of Rs. 3,00,000 and a separate individual health insurance plan for his wife (Savita) with a sum assured of Rs. 3,00,000. At the same time, his friend Mahesh Verma, aged 35 (married and has a 5 year old son), opts for a family floater health insurance plan with a sum assured of Rs. 5,00,000 covering himself, his wife and his son. The question is – individual Vs. family floater – which plan is better?

The answer is not so simple. For analysing the insurance cover of two families, firstly, let us briefly understand the difference between the two plans.

Individual health insurance plan: An individual health insurance plan provides health insurance coverage to a single individual. So Vivek’s individual health insurance plan will cover him for specified hospitalisation expenses up to Rs. 3,00,000 in a year. Similarly Savita’s (Vivek’s wife) individual health insurance plan will cover her for specified hospitalisation expenses up to Rs. 3,00,000 in a year.

Family floater health insurance plan: A family floater health insurance plan offers an umbrella cover to the family members covered under the plan i.e. self, spouse and children. Some insurance companies also offer to cover parents, siblings and parents-in-law under the family floater plan. The health insurance cover floats over the family and can be utilised by any / all family members covered, in any proportion, subject to the maximum cover allowed. In simpler words Mahesh Verma’s family (self and spouse) can share the health insurance cover of Rs. 5,00,000 in any proportion under the family floater plan.

Let us have a look at some of the pros and cons of the two plans in detail.

Pros and Cons

a)      Premium

The premium for a family floater plan is relatively lower as compared to buying an independent individual health insurance plan for each family member. Let us understand this with the help of the illustration.

Take the case of Vivek Gupta – He paid an annual premium of Rs. 4,578 for buying an individual health insurance plan with a sum assured of Rs. 3,00,000 for himself. He also paid an annual premium of Rs. 4,578 for buying a separate individual health insurance plan with a sum assured of Rs. 3,00,000 for his spouse. His total premium outgo for the 2 individual health insurance plans is Rs. 9,156.

(Please note: The above premiums have been taken from Apollo Munich website for an Easy Health Plan (Standard) - Individual for an individual aged 35 years old for a sum assured of Rs. 3,00,000. The premium is as on July 2015).

At the same time, Mahesh paid Rs. 8,717 to buy a family floater health insurance plan for a sum assured of Rs. 5,00,000 for covering himself and his spouse.

(Please note: The above premiums have been taken from Apollo Munich website for an Easy Health Plan (Standard) – Family Floater for the eldest member aged 35 years and the 2nd member in the age category of 18-34 years for a sum assured of Rs. 5,00,000. The premium is as on July 2015).

So we can see that from the cost perspective, the family floater plan  is looking more beneficial. 

 b)     Use of sum assured

 The sum assured limit in an individual plan can be used independently by the policyholder for meeting his / her personal medical expenses, but cannot be used for meeting medical expenses of other family member/s.

For example if Savita (Vivek Gupta’s wife) undergoes a surgery costing around Rs. 4,00,000, then the insurance company will be liable to settle the claim amount only up to Rs. 3,00,000 (sum assured limit of the individual health plan taken) and the balance treatment cost of Rs. 1,00,000 will have to be borne out of pocket. Even though the sum assured limit of Vivek’s plan is lying unused, it cannot be used for meeting the treatment expenses of his wife.

As against this, in case of a family floater plan, the sum assured value floats among the family members insured. Hence the sum assured can be used for meeting the medical expenses of any of the family member/s covered under the plan, up to the sum insured limit in a year.

For example if Mahesh Verma’s wife has to undergo an operation costing around Rs. 3,50,000, then the insurance company will be liable to settle the entire claim amount as the family floater cover amount is Rs. 5,00,000. Few months down the line if Mahesh is hospitalised in the same year and the treatment expenses are Rs. 1,00,000, then the insurance company will be liable to settle the entire claim amount as the family floater cover amount is Rs. 5,00,000 (out of which Rs. 3,50,000 has been already utilised for his wife’s treatment) still leaving a balance available of Rs. 50,000 for hospitalisation costs if Mahesh or his wife get hospitalised again in the same year.

The concept of family floater plan is based on the probability that all the family members getting seriously ill and hospitalised in the same year is low. Hence if an incident occurs where all the family members are hospitalised in same year (e.g. an accident involving the entire family), then cost of treatment that will be covered by insurance company will be limited to the sum assured. Medical expenses exceeding sum assured will have to be borne by the family from their pocket.

c)      Age restriction – Senior most member

In case of a family floater plan, the renewal of the policy depends on the age of the eldest family member covered under the policy.

Most of the insurance companies restrict the maximum age of policyholder in a family floater plan to 60 – 70 years (age limit varies with company). Once the senior most member reaches the specified age limit (maximum age of renewability), the policy cannot be renewed and other family members will have to purchase a new health insurance plan. In such a scenario, if the other family members have to buy a new policy, the ‘No Claim Bonus’ and the benefit of lapsation of the waiting period/s on the old policy will be lost. Also the existing family members will have to buy a new health insurance policy at a higher premium as their age has increased as compared to when the old policy was bought.

So in case the age of your parents is 50 years or above, it is advisable to buy a separate family floater plan or individual plans for them rather than including them in your family floater plan.

The above problem (senior most member reaching maximum age) do not arise in case of an individual health insurance plans because each family member is covered under a separate health insurance plan and hence an individual reaching the maximum age does not affect the other family members.

d)     Death of senior most member

In the event of death of the senior most member; most insurance companies discontinue the family floater plan. This problem does not arise in an individual health plan as each plan is independent of the other plan.

e)      Age restriction – Children

Insurance companies may restrict the maximum age of children members covered in a family floater plan to 20 – 25 years (age limit varies with company). Hence once the children reach the specified age limit, they will no longer be covered under the family floater health insurance plan of their parents and they will have to purchase a separate health insurance plan for themselves.

This problem does not arise in case of individual health insurance plans because each family member is covered under a separate health insurance plan and hence children’s reaching the maximum age does not have any effect.

f)       No claim bonus

In an individual plan if there is a claim, it does not affect the ‘no claim bonus’ of the other family members as they have their individual plans. In case of a family floater, if there is a claim due to hospitalisation of any family member, then the entire family’s no claim bonus gets affected adversely.

g)      Pre-existing medical condition

If a family member has been diagnosed with a critical illness or there is a pre-existing medical condition, which accounts for major medical expenses in a family, then in such cases, individual plans are considered to be a much better option as compared to family floater plan. The reasons being premium will be higher than normal for including a family member with critical illness or pre-existing medical condition in a family floater plan. Also it is very likely that such a family member will exhaust the limit of sum assured in a family floater plan leaving the other family members vulnerable without any health cover. 

Pros and Cons in brief:

  

 

Individual Health Plan

Family Floater Plan

Concept

It offers health insurance cover to an individual

It offers an umbrella health insurance cover to the family members – self, spouse and kids

Premium amount

Premium amount will be relatively higher if a separate plan has to be purchased for each family member

Premium amount will be relatively lesser as family members – self, spouse and kids get covered under a single plan

Use of sum assured

Sum assured for an individual can be used only for his / her benefit fully. The other way round, sum assured for one family member cannot be used for treatment of another family member.

Sum assured is on a floating basis, and can be used for treatment expenses of any member of the family in any proportion.

Age restriction – Senior most member

Individual maximum age limit does not affect other family member/s as each policy is independent of each other

Policy is issued / renewed depending upon the age of the senior most member of the family. Once he / she reaches maximum age of 60 – 65 (age limit varies with company), other members will have purchase a new policy

Age restriction – Children

Since children are already covered separately, the age restriction for children does not come into play at all.

Children reaching the age of 20 – 25 (age limit varies with company) cannot be covered under the existing family floater plan (of parents) and will have to buy a separate health cover

No claim bonus

In the event of a claim, the ‘no claim bonus’ of the other family members is not affected as all plans are independent of each other

In the event of a claim, the entire family’s ‘no claim bonus’ gets affected.

Family member with critical illness or pre-existing medical condition

Individuals diagnosed with a critical illness or having a pre-existing medical condition are bound to have high medical bills and hence are better off having an individual health insurance cover

In a family floater plan, a family member with a critical illness or pre-existing medical condition can increase the overall premium and also exhaust the entire sum assured, leaving the other family members vulnerable

 

Conclusion

In a family floater plan, all the family members can be covered under a single policy leading to reduced cost of health insurance in the form of low premiums. Also the cover can be shared by all family members in any proportion. Such family floater plans are better suited for nuclear families (usually in the age group of 25-40 years), having low probability of all family members getting hospitalised in a year.

However the flip side of family floater plans include age restriction on senior most member (discontinuity of plan on eldest member reaching maximum age of renewability), discontinuity of plan on death of senior most member, age restriction on children (beyond the age of 20-25 years they cannot be covered under the plan of their parents), no claim bonus getting affected due to any claim due to hospitalisation of any member during the year etc.

If a member is diagnosed with a critical illness or more than one family member gets hospitalised in a year, then there is an increased chance of the entire sum assured getting exhausted fairly quickly, leaving the family vulnerable to medical costs.

In an individual plan, one is not dependent on other person’s health risk or the other person’s age (senior member reaching maximum age or children reaching an age where they cannot be covered under existing floater plan of their parents). Hence overall, individual health insurance plans seem to have a slight edge over family floater health insurance plans.

 To conclude, the choice of family floater plan or individual health plan depends on the individual’s needs. One needs to carefully evaluate their needs based on age and health risks along with other factors before choosing between an individual or family floater health insurance plans.

The article has been written by Gopal Gidwani who is the owner of personal finance website www.bachatkhata.com

To know more about this plan or want an un-baised free call to help you understand best  critical Illness policy kindly fill your details here or send an email to expert@medimanage.com You can also call us on 9930220284. 

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