Family Floater Health Insurance vs Individual Health Insurance

Family Floater Health Insurance vs Individual Health Insurance - Which one to choose?

by S. K. Sethi, Director, RIA INSURANCE BROKERS PVT. LTD.

Q1. What is the fundamental difference between a family floater health insurance policy and an individual health insurance policy?

The fundamental difference between a Family Floater Health Insurance Policy and an Individual Health InsurancePolicy lies in coverage distribution and cost:

1.    Individual Health Insurance Policy:

Ø Covers every one person for a specific sum assured. Policy can cover upto 6 persons.

Ø The sum assured is dedicated solely to that individual.

Ø Premium is calculated based on the person’s age, medical history, and other factors.

Ø Suitable for individuals who want exclusive coverage.

Ø Different individuals in the family can be given different sum assured.

Ø Policy can be issued to a family with name of every individual and varying sum assured.

2.    Family Floater Health Insurance Policy:

Ø Covers multiple family members under a single policy.

Ø The sum assured is shared among all assured members.

Ø Premium is always calculated based on the eldest member’s age.

Ø Cost-effective if all members are relatively healthy.

Learning: An individual policy ensures full coverage for one person, whereas a family floater shares coverage among various family members. It is offering flexibility but carries potential limitations, if claims are high.

Q2. How is the "sum assured" handled in each type of policy?

The handling of the sum assured differs significantly between an Individual Health Insurance Policy and a Family Floater Health Insurance Policy:

1.    Individual Health Insurance Policy:

Ø The sum assured is dedicated to a single person.

Ø If the assured person falls ill and needs medical care, he can use the entire sum assured for his treatment.

Ø Each family member who has an individual policy has their own separate sum assured.

Ø Example: If an individual has a policy with a sum assured of ₹5 lakhs, he can claim up to ₹5 lakhs for his medical expenses, regardless of other family members' medical needs.

2.    Family Floater Health Insurance Policy:

Ø The sum assured is shared among all covered family members.

Ø If one member utilizes certain portion of the sum assured, the remaining amount is reduced for other members during the policy year.

Ø More cost-effective for families.

Ø Example: If a family of four is covered under a floater plan with a sum assured of ₹10 lakhs, and one member uses ₹6 lakhs for a treatment, only ₹4 lakhs is available for the rest of the family members for the remaining policy period.

Learning: In an individual policy, each person has their own fixed coverage, while in a family floater, the coverage is pooled and can be used by any member, which may lead to exhaustion of the sum assured if one member requires extensive treatment.

Q3. How are premiums calculated for a family floater policy versus an individual health insurance policy?

The premium calculation for a Family Floater Policy and an Individual Health Insurance Policy follows different methods due to how risk and coverage are distributed.

1. Individual Health Insurance Policy

Ø The premium is calculated separately for each assured member based on:

§  Age

§  Medical history

§  Sum assured

§  Lifestyle habits (e.g., smoking, pre-existing diseases)

Ø Since each person gets their own sum assured, the total premium is the sum of premiums for all individual policies.

Ø Example: If a 30-year-old has a policy with a sum assured of ₹5 lakhs, his premium might be ₹8,000 annually. If his spouse (28 years old) also buys a ₹5 lakhs policy, his premium might be ₹7,500. The total cost for the couple would be ₹15,500.

2. Family Floater Health Insurance Policy

Ø The premium is based on the eldest family member’s age because older members have a higher health risk.

Ø A single sum assured is shared among all family members.

Ø Generally, the premium is lower than buying individual policies for each member

Ø Example: If a family of four (ages 35, 32, 10, and 7) takes a floater policy with ₹10 lakhs coverage, the premium might be around ₹18,000–₹20,000 annually. If the eldest member were 50 instead of 35, the premium would be higher. It can be 25% lower than total sum of every individual’s premium for all family member.

Learnings in Premium Calculation:

Factor	Individual Policy	Family Floater Policy
Basis of Calculation	Age & risk of each individual	Age of the eldest member
Coverage	Separate sum assured for each person	Shared sum assured for the entire family
Risk Management	No impact of other members’ claims	High claims by one member reduce coverage for others

Which One to Choose?

Ø Young couples or small families → Family Floater (cost-effective)

Ø Elderly individuals or families with senior members → Individual Policies (better coverage per person)

Ø Members with existing health conditions → Individual Policies (to avoid risk of claim exhaustion)

Q4. In what situations might individual health insurance policies become more expensive for a family than a floater policy?

Individual health insurance policies can become more expensive than a family floater policy in the following situations:

1. Insuring Multiple Young and Healthy Family Members

Ø If all family members are young (e.g., under 40) and relatively healthy, a family floater policy is usually more cost-effective.

Ø Buying separate individual policies for each member means paying separate premiums, which will add up to a higher total cost.

Ø Example:

§  Individual policies with sum assured of Rs 10 Lakhs for a couple (ages 30 & 32) and their child (age 5) might cost ₹8,000 + ₹7,500 + ₹5,000 = ₹20,500 per year.

§  A family floater policy with a ₹10 lakhs sum assured for all might cost only ₹15,000–₹17,000 per year and it is generally 25% lower as compared to individual health insurance policy, where every individual is covered for Rs 10 lakhs.

2. When No Family Member Has Major Pre-existing Conditions

Ø If no one in the family has chronic illnesses like diabetes or heart disease, a floater policy makes sense because there's a lower likelihood of exhausting the shared sum assured.

Ø In contrast, individual policies would require separate underwriting and might lead to a higher combined premium.

3. When the Eldest Family Member is Still Young

Ø Since family floater premiums are based on the age of the eldest assured member, they remain affordable if the eldest member is relatively young (below 40–45).

Ø If a family consists of a couple (35 & 32 years old) and two children, a floater policy is cheaper than buying four individual policies.

4. Families with More Members but Limited Medical Needs

Ø If a family of four or more members has relatively low medical needs, a floater plan spreads the coverage efficiently.

Ø Buying four individual policies with ₹5 lakhs coverage each is more expensive than a single ₹10–15 lakhs floater plan.

When Individual Policies Might Still Be Better

Ø If the eldest member is above 50, floater premiums increase significantly.

Ø If a family member has pre-existing conditions, a dedicated sum assured might be necessary.

Ø If different family members need varying levels of coverage (e.g., one person requires ₹10 lakhs, while others need only ₹5 lakhs).

Q5. What are the advantages of having a dedicated sum assured for each individual, as in individual health insurance?

Having a dedicated sum assured in an individual health insurance policy offers several advantages, especially in scenarios where healthcare needs vary among family members. Here are the key benefits:

1. Full Coverage for Each Person

Ø Every assured member has a fixed sum assured, ensuring that their medical expenses are covered without depending or affecting other members of the family. In the event of no claim during the year then No Claim Bonus (NCB) is added and cumulative sum assured increases year by year.

Ø In a family floater policy, if one member uses up most of the sum assured, others may be left with little to no coverage.

2. No Risk of Claim Exhaustion

Ø In a floater policy, a high claim by one family member (e.g., major surgery or hospitalization) can deplete the shared sum assured.

Ø With individual policies, each person retains their full sum assured, reducing the risk of being underassured.

3. Better for Family Members with Pre-existing Conditions

Ø If one or more members have chronic illnesses (e.g., diabetes, heart disease), they may require frequent hospitalization or expensive treatments.

Ø Having a dedicated sum assured ensures continuous protection without affecting coverage for other members.

4. Suitable for Older Family Members

Ø Premiums for a family floater policy are based on the eldest member’s age, making it more expensive when covering seniors.

Ø Instead, separate individual policies can provide tailored coverage and reduce costs for younger members.

5. Ideal for Large Families

Ø In larger families (e.g., 5+ members), a single floater sum assured may not be sufficient if multiple people need medical care in the same year.

Ø Individual policies ensure each person gets the necessary financial protection.

6. Better Coverage for High-Risk Individuals

Ø If one family member has a higher health risk (e.g., due to a hazardous profession or lifestyle habits like smoking), their policy can be customized separately.

Ø This avoids increasing the premium for the entire family, as would happen in a floater plan.

7. Flexibility in Choosing Different Coverage Levels

Ø With individual policies, each person can select their own sum assured based on their specific health needs.

Ø In a floater, the same sum assured is shared, which may not suit everyone’s needs equally.

8. No Dependency on Family Members' Renewals

Ø If a floater policy is discontinued (e.g., if the primary policyholder decides to stop renewing it), all members lose coverage.

Ø With individual policies, each person controls their own renewal, ensuring continuous coverage.

When Individual Policies Make More Sense

✅ If the family has elderly members or high-risk individuals
✅ If someone has pre-existing conditions requiring frequent hospitalization
✅ If a large family needs comprehensive coverage for all members
✅ If family members want different sum assured amounts and benefits

Q6. What are the potential drawbacks of a shared sum assured in a family floater policy?

A shared sum assured in a family floater health insurance policy can be cost-effective, but it also comes with certain drawbacks that families should consider before choosing this option.

1. Risk of Claim Exhaustion

Ø Since the sum assured is shared, one member’s major hospitalization can deplete the entire coverage, leaving little or nothing for others.

Ø Example: If a floater policy has a sum assured of ₹10 lakhs and one member undergoes surgery costing ₹7 lakhs, only ₹3 lakhs remains for the rest of the family.

2. Not Ideal for Families with Elderly Members

Ø The premium is based on the eldest family member’s age, making the policy expensive if a senior citizen is included.

Ø If the family includes both young and elderly members, it may be more cost-effective to buy separate policies for the senior member.

3. Unequal Distribution of Coverage

Ø One person might use most of the sum assured, leaving other family members underassured.

Ø If multiple members need medical care in the same year, the total coverage may not be sufficient.

4. Higher Renewal Premiums After a High Claim Year

Ø If a family member makes a large claim, the insurer may increase the renewal premium significantly.

Ø Unlike individual policies where the risk is spread, a floater policy can see steep premium hikes after frequent claims.

5. Limited Coverage for Chronic Illness Patients

Ø If one member has a chronic illness (e.g., diabetes, heart disease), they might require frequent hospitalization, using up the shared sum assured.

Ø This can leave others in the family without adequate coverage if they also need medical care.

6. Inadequate Coverage for Large Families

Ø For larger families (e.g., 5+ members), a single sum assured may be insufficient, especially if multiple people need treatment within the same year.

Ø It might be better to opt for higher coverage or a mix of floater and individual policies.

When a Family Floater Might Not Be the Best Choice:

❌ If the family has elderly members (due to higher premiums)
❌ If one member has chronic illnesses requiring frequent treatment
❌ If multiple members might need high medical expenses in the same year
❌ If the family is large and a single sum assured may not be enough

Q7. How does the age of family members influence the decision between a floater and individual policies?

The age of family members plays a crucial role in deciding between a family floater policy and individual

health insurance policies because it affects premium costs, coverage adequacy, and long-term benefits. Here’s how:

1. If All Family Members Are Young (Below 40 Years Old) → Family Floater is Better

✅ Lower Premiums – Since younger individuals are at lower health risk, insurers offer competitive rates for floater plans.
✅ Cost-Effective – A shared sum assured is usually sufficient because young individuals generally have fewer medical expenses.
✅ Convenience – Managing a single policy for the whole family is easier than tracking multiple individual policies.

🔹 Best Choice: A floater policy with a reasonable sum assured (₹10–15 lakhs) is often the most economical choice for young couples or small families with kids.

2. If the Eldest Family Member Is Above 45–50 Years Old → Individual Policies May Be Better

❌ Higher Premiums for Family Floater – The floater policy premium is based on the eldest member’s age, making it more expensive as the senior’s health risk increases.
❌ Risk of Claim Exhaustion – Older members are more likely to need hospitalization, using up the shared sum assured, leaving younger members with limited coverage.

3. If There’s a Large Age Gap Among Family Members → Mixed Approach Works Best

🟢 Example: A family with parents (50+ years) and children (20s to 25s).

Ø Parents should have separate individual health insurance because their higher health risks can lead to frequent claims and increased floater premiums.

Ø Children or younger adults can stay on a family floater policy to keep the costs lower.

🔹 Best Choice:

Ø Parents: Separate individual policies (₹10–15 lakhs each). May be higher.

Ø Young adults: Floater policy (₹10–15 lakhs shared).

4. If There Are Children or Dependents Below 25 Years Old → Floater is Ideal

✅ Children and young adults (up to 25 years old) can be covered under a floater policy with their parents.
✅ Cost-efficient compared to buying separate individual policies for young dependents.
✅ Once they reach 25+ years, they should transition to their own health insurance policy.

🔹 Best Choice:

Ø If both parents are below 40, a floater policy is enough.

Ø If one parent is above 50, consider separate coverage for the parent in addition to coverage in family floater plans.

Final Recommendation Based on Age Groups

Age of Family Members	Best Policy Choice	Why?
All below 40	Family Floater	Lower premiums, shared coverage is enough
Parents 50+, children younger	Mixed: Individual for parents, floater for family with kids	Reduces cost, avoids high floater premiums
Eldest member 60+	Individual for all	Floater premiums become too expensive
Young parents + kids under 25	Floater	Convenient, cost-effective
Large family with varying ages	Combination of floater & individual	Ensures adequate coverage & cost control

 

Q8. Can individual health insurance policies be converted into a family floater policy?

Yes, individual health insurance policies can be converted into a family floater policy, but it depends on the insurer’s underwriting guidelines and specific terms. Here’s how it generally works:

1. When Can You Convert Individual Policies to a Family Floater?

✅ At Policy Renewal: Most insurers allow conversion during renewal by merging individual policies into a single floater policy.
✅ If All Members Are Covered Under the Same Insurer: If the existing individual policies are with the same insurance provider, conversion is usually easier.
✅ When the Policy Terms Allow It: Some insurers have specific guidelines for switching, and they may require a formal request.

2. Process for Converting Individual Policies to a Floater Policy

🔹 Step 1: Contact a good insurance broker firm and request a policy conversion.
🔹 Step 2: The insurer will assess the age, health conditions, and previous claims of all members.
🔹 Step 3: A new floater policy will be issued with a combined sum assured and revised premium based on the eldest member’s age.
🔹 Step 4: Any existing waiting periods (e.g., for pre-existing diseases) may carry over or restart, depending on the insurer’s policy.

3. Things to Consider Before Converting

❌ Premium May Increase: If the eldest family member is above 45–50 years, the floater premium might be higher than individual policies.
❌ Shared Sum Assured Risk: If one member has frequent medical needs, a floater may not provide enough coverage for others.
❌ Waiting Periods: If one member has completed the waiting period for pre-existing conditions in their individual policy, switching to a floater might restart the waiting period.

4. When Is It a Good Idea to Convert?

✔️ Young families with no major health issues → A floater plan is cost-effective.
✔️ Couples or nuclear families with children under 25 → A floater policy simplifies management.
✔️ If individual premiums are adding up too much → A floater may reduce overall costs.

5. When Should You Keep Individual Policies?

❌ If the eldest member is above 50+ → A floater might become too expensive.
❌ If someone has a chronic illness → An individual policy ensures they have a dedicated sum assured.
❌ If past claims have been high → A floater renewal premium might increase sharply.

Final Verdict:

🔹 Yes, you can convert individual policies to a floater, but it’s best suited for younger families with minimal health risks.
🔹 For mixed-age families or those with health conditions, a combination of floater and individual policies is often better.

Q9. What factors should a family consider when deciding between these two types of health insurance?

When deciding between an Individual Health Insurance Policy and a Family Floater Policy, a family should consider the following key factors:

1. Age of Family Members

✔️ If all members are young (below 40) → A family floater is cost-effective.
✔️ If the eldest member is above 50 → Individual policies are better because floater premiums rise significantly with age.
✔️ If there’s a large age gap → Consider a mixed approach (individual policy for older members, floater for younger ones).

2. Health Condition of Family Members

✔️ If a member has chronic illnesses (e.g., diabetes, heart disease) → An individual policy ensures they have a dedicated sum assured.
✔️ If all members are relatively healthy → A floater policy is a budget-friendly option.

3. Number of Family Members

✔️ For small nuclear families (couple + 1-2 kids) → A family floater is sufficient.
✔️ For larger families (5+ members) → A higher sum assured floater or a combination of individual & floater plans is better.

4. Risk of Claim Exhaustion

✔️ Floater policies share a sum assured, meaning if one member uses a large portion, others may be left with little coverage.
✔️ Individual policies ensure each person has their full sum assured.

5. Premium Costs & Budget

✔️ Floater premiums are lower if the family is young and healthy.
✔️ Individual premiums may be costlier but provide dedicated coverage.
✔️ Compare the total cost of multiple individual policies vs. a floater before deciding.

6. Coverage Needs

✔️ If one family member needs higher coverage (e.g., a senior or someone with a history of hospitalization), an individual policy is better.
✔️ If everyone’s healthcare needs are similar, a floater policy works well.

7. Waiting Periods & Pre-existing Diseases

✔️ In a floater, if a new member is added, waiting periods (e.g., for pre-existing conditions) may reset for all.
✔️ If an individual has already completed their waiting period in an individual policy, switching to a floater could restart it.

8. Renewal & Portability

✔️ If the primary policyholder of a floater policy passes away or doesn’t renew, the policy may lapse for all members.
✔️ Individual policies provide independent renewability for each person.

9. Future Family Planning

✔️ Young couples planning to have children should check if a floater policy covers maternity expenses.
✔️ Elderly parents may be better off with a separate policy to avoid premium hikes for the entire family.

Final Decision Guide:

Factor	Family Floater Policy	Individual Health Insurance
Best for Age Group	Young families (below 40)	Mixed-age families (50+ members should get separate policies)
Premium Cost	Lower for young, healthy families	Higher but provides dedicated coverage
Coverage for Chronic Illnesses	Risk of claim exhaustion	Ensures full coverage per person
Number of Family Members	Ideal for 3-4 members	Better for large families (5+ members)
Claim Impact	One claim affects the entire sum assured	Each person’s coverage remains independent
Long-term Flexibility	May face issues if the primary policyholder is no longer covered	Each member can maintain their own policy

Best Approach:

🔹 For young, small families → Family floater is economical.
🔹 For families with seniors or chronic illnesses → Mix of individual & floater policies is better.
🔹 For large families → Consider individual policies or a high-coverage floater.

Q10. Why Family Floater Health Plans Aren’t Ideal for the Elderly?

While family floater health plans work well for younger families, they are not suitable for elderly individuals (60+ years). Here’s why:

1. Higher Premiums Due to Age Factor

Ø Floater premiums are based on the eldest member’s age, making the policy expensive if a senior (60+) is included.

Ø Example: A floater plan for a 35-year-old couple may cost ₹15,000 annually, but adding a 65-year-old parent can push it to ₹40,000 or more.

Ø Alternative: A separate senior citizen health insurance policy is often more affordable and provides better benefits.

2. Risk of Claim Exhaustion

Ø Seniors have a higher likelihood of hospitalization, which means they may use up most (or all) of the shared sum assured.

Ø This leaves other family members without adequate coverage if they need medical attention.

Ø Alternative: Individual policies ensure dedicated coverage for elderly members.

3. Higher Risk of Pre-existing Diseases & Waiting Periods

Ø Seniors often have pre-existing conditions (e.g., diabetes, hypertension, heart disease).

Ø Floater policies may come with longer waiting periods (2–4 years) for such illnesses, delaying coverage when they need it most.

Ø Alternative: Senior citizen policies usually have shorter waiting periods and tailored coverage for pre-existing conditions.

4. Limited Coverage for Frequent Medical Needs

Ø Elderly individuals may require regular medical care, expensive treatments, or prolonged hospital stays.

Ø A floater policy’s sum assured may not be sufficient, especially if younger family members also need coverage.

Ø Alternative: Individual senior citizen plans provide higher coverage limits for age-related illnesses.

5. Renewal & Portability Issues

Ø If the eldest member passes away or is removed, the entire floater policy might lapse, forcing other family members to buy a new policy at a higher age (and cost).

Ø Alternative: Having separate individual policies ensures continuous coverage for all family members.

6. Special Senior Citizen Plans Offer Better Benefits

Ø Many insurers offer dedicated senior citizen health insurance with benefits like:
✅ Higher sum assured (₹10-50 lakhs)
✅ Daycare treatments & domiciliary care
✅ Shorter waiting periods for pre-existing diseases
✅ Lifelong renewability

Ø Alternative: Opting for a senior citizen plan ensures comprehensive medical coverage without impacting younger family members’ policies.

Final Verdict: Why Avoid Family Floater for Seniors?

Factor	Family Floater Policy	Senior Citizen Individual Policy
Premium Cost	High due to senior’s age	More affordable for elders
Coverage	Shared (risk of claim exhaustion)	Dedicated coverage
Pre-existing Conditions	Long waiting period	Shorter waiting period
Frequent Hospitalization	Reduces coverage for others	No impact on others’ policies
Lifelong Renewability	May have age limits	Typically available

Best Alternative?

🔹 Young family members (below 40): Opt for a family floater plan.
🔹 Elderly parents (60+): Get a separate senior citizen policy for better coverage & cost efficiency.
🔹 For mixed-age families: Consider a combination of floater + individual plans.

Important Questions on Portability of Health Insurance Policy

Important Questions on Portability of Health Insurance Policy answered by Mr. S. K. Sethi, Director, RIA Insurance Brokers Pvt. Ltd., a Reputed Firm Specializing in the Health Insurance Portfolio

Q. What are the advantages and disadvantages of health insuranceportability?

Ans. Portability of Health Insurance Policy is permitted and its advantages are:

·        No loss of benefits: The waiting period for pre-existing diseases already served in the previous policy is carried forward to the new policy.

·        Better features: You have the option to switch to a policy which is offering better coverage, additional riders, improved services and may be better premium terms.

·        Customer satisfaction: Portability motivates insurers to provide better service to retain the customers or to attract new customers.

There are few Disadvantages of the Portability are:

·        Premium changes: The premium may increase depending on your age, medical history, and other risk factors.

·        Limited portability options: Some insurers may not offer policies exactly matching your current policy's features.

·        Approval risk: Portability requires approval from the new insurer, who may deny it based on the medical conditions or other underwriting guidelines.
It is to make clear that new insurer has right/option to access your expiring health insurance policy details and Claims history.

Q. What should be kept in mind while porting insurance?

Ans. The following points should be kept in mind:

·        Policy renewal timing: As per procedure it is desired that you start the portability process 45 days before the policy renewal date. In the event of refusal by new insurer you will have the option to continue with your existing insurer.

·        Disclosure of health conditions: Provide complete and truthful information about medical history to avoid claim denials at later date.

·        Coverage comparison: Ensure the new policy covers all essential benefits you need.

·        Insurer reputation: Choose a reliable insurer known for good claim settlement ratios and customer service.

Q. When should we choose this option?

Ans. Portability is a good choice if:

·        You are not satisfied with service being provided by your current insurer or agent or the claim settlement process of the insurer.

·        You find better features, wider coverage, or attractive premiums with another insurer.

·        Your healthcare needs have changed, requiring enhanced coverage.

Q. Is it better to take a new plan instead o porting insurance? What are the other options?

Ans.

·        Portability is preferable if you have already served waiting periods for pre-existing conditions in the existing policy.

·        Taking a new plan can be beneficial if your current policy offers limited coverage, but you will need to restart waiting periods.

·        Enhancing your current policy with add-ons or riders is another option to consider.

Q. According to a recent IRDAI report, health insurance rejections have increased significantly. What rights does a policyholder have if a claim is rejected? What precautions should be taken to avoid rejection?

Ans. It pays to move step by step in the right direction for settlement of your claims:

·        Appeal to the Branch Manager: After finding the reason for claim rejection and checking of the facts at your end, you should take up the matter with branch manager.

·        Appeal to the grievance cell: Every insurer has a grievance redressal system to handle disputes. in case of no favorable decision at branch level, you should write to Grievance cell of the insurance company.

·        Escalation to IRDAI: If unsatisfied with the insurer’s response, you can always escalate the issue to IRDAI or approach the Insurance Ombudsman or consumer forum of your district.
We personally feel that going to Insurance Ombudsman is a better option. Full facts are to be presented to Insurance Ombudsman of your region/state.

You should take following precautions to Avoid Rejection:

·        Full disclosure: Provide accurate and complete information about medical history when purchasing or porting your health insurance policy.

·        Policy understanding: Read the policy document carefully to know the inclusions, exclusions, and claim procedures.

·        Timely premium payment: Ensure continuous policy coverage by renewing on time before its due date as claim lodged during the grace period will be rejected by the insurer.

·        Timely Intimation: As and when hospitalization is required intimation has to be sent to the insurer. Documents are to be submitted to insurer within required time frame.

·        Proper documentation: Submit all required documents accurately and in their original form when filing a claim.

Keep in mind Pre-hospitalization and post-hospitalization expenses are also payable to you therefore you should start keeping prescription/Doctor receipts/Diagnostic tests receipt /reports/chemist bills in a file for submission.

Surrender Vs Sale of Life Insurance Policy

Mr. S. K Sethi, Director, RIA Insurance Brokers

1.    How can I sell my life insurance policy to third party/company?

Ans. Life Insurance policy is a contract between Insurer & Insured, where name of the nominee and his/ her blood relation with the insured is a must and important information.

There are instances, where an insurance policy is issued in favor of borrower where premium is paid out of loan amount being disbursed by lender. In such cases the name of the lender is mentioned as a nominee/ beneficiary.

It is very clear that selling of life insurance policy (which has been in operation for some time or few years) is not desirable as nominee (Spouse/blood relation) will not come to know that her name has been removed from the policy.

For endowment and ULIP policies in case an insured is in need of funds then he can borrow good % of the premium paid from the insurer or any bank and in that case, insurer or the bank can have the right over policy and in the event of death of insured the claims payment will be made. In this case the bank will deduct Loan+ Interest and will pay the balance amount to the nominee, mentioned in the policy.

2.    Is selling a policy a better option than surrendering it? What are its advantages and disadvantages?

Ans: Theoretically selling is a better option than surrender value as you will get higher amount.

Assuming the insurer is ready to change the name of nominee to buyer. (who is not a blood relation) - one may face dealing with unfair, cheat, crooked, greedy person who may get the insured murdered, killed, kidnapped with a view to get large amount of sum assured.

Advantage: May be insured is getting few thousand rupees more than surrender value calculated by the insured .

Disadvantage: Can be that he can get murdered/ killed by the buyer (lender).

We personally feel that you should avoid selling of your life insurance policy.

3.    Which agencies/companies in India are authorized to buy Insurance policies? How do they earn from these policies?

Ans: According to our information lender at the timing of granting/ approving disbursing loan is allowed to get policy issued where lender is the nominee/ beneficiary.

Buying of the life insurance policy is in operation and it being done by various companies.

You can locate the names of such companies.

4.    Process: If I want to sell my policy, how can I do it? 

Ans: Normal process for change in name of nominee will be applicable and your insurer will guide you with forms to be filled up.

5.    What is the role of the insurance company in this entire process?

Ans: In the case of overdraft being granted by the bank-policy will be endorsed by the insurer as hypothecated to the bank and returned to the bank.

In this case the original insurance policy bond will be in possession of the bank.

In case of change in name from nominee to the buyer of the insurance policy- Insurer will guide you will forms to be filled up.

6.    After the insurance matures, will the insurance company send the money to the policyholder's account or the third party's account?

Ans: After the maturity of the policy insurer will send money to the bank as per hypothecation details.

As nominee does not have original insurance policy bond with him/ her so he /she can not lodge claim with insurer. Attaching of the original policy bond/ document is a precondition for submission of claim documents to the Insurer.

7. If the policyholder dies before maturity, what will be the process?

Ans: The nominee/beneficiary has to submit the following documents:

·      Original Policy Bond

·      Death Certificate

·      Bank Account Details/ KYC of nominee

·      KYC Documents of deceased.

In case it was hypothecated with the bank then they will submit these documents. Assuming the amount being paid is higher than loan+ Interest amount then the balance amount will be paid to nominee.

8.    LIC has declared such practices unauthorized. What does this mean?

Ans:  Life Insurance Corporation of India (LIC) the leading life insurer, of our  country treated such sale of policy as unauthorized .and many years back took up the case to Bombay High Court where the judgment went in favor of Insure Policy Plus Services (India) Pvt Ltd.

LIC went to the Supreme Court of India and the appeal was rejected. So as on today the sale of insurance policy is allowed.

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Options for paying of Hospitalization Bills

Options for paying of Hospitalization Bills:

If anyone has to get hospitalized for the treatment, when the amount involved is small then it does not matter but when the amount of hospitalization exceeds Rs. 3 Lakhs then payment of hospitalization becomes a challenge

Let us look at the options which are available:

1.     Out of the savings

2.     Borrowing funds from relatives/friends

3.     Credit card

4.     Loan from Bank for hospitalization.

5.     Health Insurance

Let us look at these options in details:

1.     Out of the savings:

Paying hospitalization bills using personal funds, such as savings accounts, fixed deposits, selling of shares, or withdrawal from mutual funds, ensures that no interest or debt is incurred. This method provides financial independence and avoids creation of additional liabilities. However, using savings for medical expenses can significantly deplete the funds earmarked for future financial goals like child education, home buying, retirement, or children’s marriage. It will potentially disrupt long-term financial plans of the family for a long time to come.

2.     Borrowing funds from Relative’s/ Friends

Taking a loan from relatives or friends to pay hospitalization bills can be a convenient option as it generally comes without interest. However, this arrangement may lead to future obligations, as relatives or friends might expect financial support in return when they need it. Additionally, such loans are usually given for a short duration, requiring quick repayment, say in 2 months’ time.

3.     Credit Card

Credit cards provide quick and easy access to funds, enabling immediate payment of hospital bills without delays. However, failing to make payments on time on due date can result in payment of high/very high interest rates, sometimes it is exceeding 36%. Additionally, missed payments or defaults can negatively impact your credit score (CIBIL), for a long time to come.

4.     Loan from Bank for Hospitalization.

Opting for a personal loan from a bank to cover hospitalization bills can be a viable option, as it typically offers lower interest rates compared to interest to be paid to credit cards. However, eligibility requirements must be met, including maintaining an existing bank account for at least six months, having a stable monthly salary being deposited in the account, and providing income tax return (ITR) records. These criteria may make it challenging for individuals without a formal/stable income history to secure the loan.

In case you are considering this option then follow discipline even if you are getting income in cash then do deposit it in bank and then withdrawal it as and when needed.

In summary taking a loan from a bank has its own requirements:

In order to apply for the loan for paying hospitalization bill there are some conditions you have to follow:

1. You must have an existing savings bank account with the same bank.
2. The Account of the bank should has been operational and active continuously for more than 6 months.
3. You should have the regular monthly salary income record with the bank.

5. Health Insurance

a) Lump sum Payment
b) ECS Payment Options

ECS (Electronic Clearing Service) in health insurance is an automated payment method that allows policyholders to pay their insurance premiums directly from their bank accounts. It is a hassle-free way to ensure timely payments without manual intervention.

In the world health insurance is the most efficient and popular way to cover hospitalization costs. It ensures financial security during medical emergencies. It eliminates the burden of large out-of-pocket expenses and provides comprehensive coverage. However, to avail of these benefits, you must have a valid health insurance policy.  Insurance Companies permit clients to pay the premium on yearly, half-yearly, quarterly, or monthly basis.

Why Health Insurance is the Best Choice over Other Payment Options

When it comes to paying hospitalization bills, relying on savings, borrowing from friends or relatives, using credit cards, or taking a personal loan might seem like viable options, but each one has significant drawbacks. Health insurance, on the other hand, provides the most efficient and stress-free way to handle medical expenses. Here’s why:

1. Financial Protection Without Risk: Unlike using your savings, which depletes funds meant for future goals, health insurance covers major hospitalization expenses, reducing your financial burden. It also provides tax benefits under Section 80D, offering additional savings.

2. Convenience & Peace of Mind: Borrowing from friends or relatives can create financial strain and obligations, while credit cards come with extremely high interest rates. Health insurance, however, provides cashless treatment at network hospitals, allowing you to focus on recovery rather than scrambling for funds in an emergency.

3. No Debt or Eligibility Hurdles: Unlike bank loans, which require credit checks, salary records, and income tax returns, health insurance is easily accessible and doesn’t leave you in debt. Additionally, family plans allow you to cover multiple members under one policy, making it a more cost-effective and hassle-free solution.

4. Long-Term Health Benefits: Many health insurance plans offer free annual check-ups, promoting early disease detection and preventive care. This proactive approach ensures you stay healthy and avoid major medical expenses in the future - something no credit card or loan can provide.

In short, health insurance is a smart financial safety net that prevents you from draining your savings, accumulating debt, or facing unnecessary stress during medical emergencies. It offers financial security, convenience, and long-term health benefits - all of which make it the best choice for managing your hospitalization expenses.

Health Insurance Premium collection is touching Rs. 129863 crores in 2024-2025

Few years back (2007-2011) we were very enthusiastic about the growth of Health Insurance portfolio. This was especially true during 2007-08, when this portfolio grew by 59.20%. Let us look at the growth figures in the recent year.

We have drawn graph showing the % growth YOY and, it shows that yearly growth figure in % terms is stagnating for last 4 years around 22%. Even at 20.60% for the current year (31 March 2025) we foresee this figure in money terms and will touch Rs 129863 Crores.

Graph Showing % Growth Year Over Year

Graph Showing Growth in Premium

Premium increase by insurers, increase in healthcare costs, stock market meltdown (February 2025) is guiding us towards customer resistance and experts have started talking about fall in percentage (%) growth of health insurance premium.

Let us try to make projections for next 6 years.

We have done this with growth rate of 12%, 20%, 30% & 60%.

Growth Chart if Premium Increases at Varying Rates

The survey of Research & Analysis Wing of Insurance Foundation of India revealed that top most wish of every individual is that- “He should have good health”. No one wishes to have materialistic prosperity of the world with ill health. This wish will support the growth of health insurance industry in the years to come.

If someone asks me- What should be the growth in health insurance premium with which I will be happy? - I will say it should not be 30 % gross but it should be 30 % net (as we have to discount for inflation of 7 % per annum in normal costs and 20 % per annum in health care costs). Let us not be satisfied with meager growth of 12 % or 20 % let us aim for growth of 30 %.

It means we should have growth of 30% year over year and then the figure will touch Rs. 519755 crores by 2029-30. Let us be clear that Health Insurance portfolio of Indian Non-Life Insurance will be No. 1 portfolio for years to come.