How to Reduce Health Insurance Premium

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Steps to Reduce Health Insurance Premium
Most people take health insurance policies only to avail tax benefits available under section 80D of Income Tax Act. As per this section, one can claim deduction of up to Rs 25,000 for insuring self, spouse and kids (the limit is Rs 30,000 if the individual or spouse is above 60 years). Additional deduction of Rs 25,000 is also available for insuring parents (Rs 30,000 if parents are above 60 years). 

Taking health insurance only to get tax benefit is a wrong strategy and this should be done based on need analysis. Medical insurance need depends on various factors like age, medical history , parents, etc. Once the insurance need is assessed, next question is to see how much insurance cover you already have. We say this because most people have some basic cover from the place they work. For example, assume that you are a 30-year-old male and need a cover of Rs 10 lakh, but your company cover is only for Rs 5 lakh. 

For this additional Rs 5 lakh, you need to take Rs top up insurance' and not the normal base cover. While an additional base cover of Rs 5 lakh will cost around Rs 5,500, this top up plan will cost only around Rs 2,500.More importantly , even if you take an additional insurance, it will act like a top up and will kick in only if the medical cost goes above the base cover (i.e. Rs 5 lakh in this case).This is because insurance claim is based on actual expenses and not on the amount of cover you have. 

What about the people who don't have existing base cover? They can also split the policy into base cover and top ups instead of taking a total cover. Instead of taking a base cover of Rs 10 lakh that costs around Rs 7,500, you can go for a base cover of Rs 2 lakh (costs around Rs 2,700) and a top up of Rs 8 lakh (costs around Rs 3,800), so the total cost will come only around Rs 5,500. While the cost of base cover for Rs 15 lakh will be around Rs 9,500, it will be only Rs 7,000 if you split it. 

You can also reduce the cost significantly by avoiding the normal medical cover and going only with the Rs critical illness cover'. After all, you need insurance against critical illness (i.e. the ones that cost big money) and not against the normal diseases. 

Critical illness covers offer several advantages. It usually comes with normal life insurance and therefore, you can take it till the age you want this cover. Since normal medical insurance is on yearly contract, there are instances of insurance companies rejecting (or increasing premium significantly so that you drop out) because of big claim in previous years. 

Unlike the normal health insurance premium that will keep on increasing with the age bands (i.e. even without any claim), premium for critical illness cover will remain constant for the entire term. That means the benefit of starting early (i.e. lock into a low premium) is available only in critical illness cover.

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