Introduction:

Both non-life and life insurance companies are keen on cashing in on the growing opportunities in the health insurance segment. They are on course to offer a slew of products, other than Mediclaim, to give more choice to consumers.

Featuring in this list are new entrants such as Apollo DKV, the second stand-alone health insurance in the country (after Star Health). Right now less than 3% of the Indian population has now a health insurance cover. With health costs on the rise, the regulator also reckons that there is scope for insurance companies to widen their reach and provide health care at affordable prices.

Last year, some insurers had also suggested their agents that they will earn no commission on renewals or sale of fresh Mediclaim to people in the older age group. The rationale was that these insurance companies were making heavy losses due to the high claims ratio (having ICR in-between 120% to 170%). The companies had also put extra loading on policies sold to senior citizens.

The Insurance Regulatory Development Authority (IRDA) has now directed all health insurers to cap the premium charged on the renewals of existing Mediclaim policies to soften the blow on senior citizens (as said by IRDA Chairman, Mr. CS Rao). Insurance companies have been debarred from hiking the premium by 50% compared to the previous year. Simply put, if the company had charged a premium of Rs 100/-, the premium cannot exceed Rs 150/- at the time of renewals. The regulator plans to initiate action against the insurers who do not adhere to this norm.

At this backdrop, Life Insurance Corporation of India has got the approval of regulator IRDA for its health insurance product ‘LIC Health Plus’, which had been launched recently. LIC after getting the desired nod to launch the health insurance products from Insurance Regulatory Development Authority (IRDA), had launched this long term comprehensive health insurance product, Health Plus during February 2008.

The Life Insurance Corporation of India (LIC) has got the insurance regulator’s go-ahead to launch the country’s first-ever health insurance policy on the unit-linked platform. The product was originally supposed to be launched in the last week of December but has been postponed partly due to the delay in regulatory approval.

“Life Insurance Corporation of India expects to provide cover to at least One Crore families within a year of the launch of its new health insurance product. It is also planning to launch a special senior citizen’s health insurance policy in due course,” said LIC’s Executive Director and Head, health insurance, Mr. DD Singh.

It seems India will be flooded with Unit Linked Health Insurance Policies now onwards as LIC as well as Reliance Life have introduced their products during February 2008 – their plans that offer the twin benefits of market-linked return and health protection. Reliance Life has become India’s second life insurer after LIC to offer a unit-linked health insurance policy. The policy is called ‘Health + Wealth’.

Unlike the cashless transaction model followed by general insurance competitors, LIC’s product would be based on the lines of floater plan, which would give the policyholder the option to receive a lump sum – which means claims could be made for even treatment undergone at home – the additional feature is the domiciliary claim, where a patient taking treatment at home will be reimbursed as and when he submits the complete bills. Initially, LIC is targeting to provide health cover to close to One Crore families in the first year of the launch of the product and expects over Rs 5,000 Crores of revenues. This Unit Linked Health Insurance Plan from Life Insurance Corporation of India (LIC) involves a lot of benefits. It- 

• Offers you Hospital Cash Benefit (HCB), Major Surgical Benefit (MSB) and Domiciliary Treatment Benefit (DTB);
• Grows along with the stock market;
• Offers your liquidity (Partial or Total) in case of Emergency;
• Allows you income-tax exemption up to Rs 15,000 per annum under Section 80 D of the Income-Tax Act. In case you are a senior citizen, however, this exemption is increased to Rs 20,000/- per annum;
• Combines other usual benefits of a ULIP;
• Health Plus comes from an Institution par excellent in Life Insurance and Money Management.

The new product – Health Plus – marks LIC’s foray into this segment and will protect along with a savings element. The product being launched by the end of February 2008, is designed as a benefit plan covering not just the policyholder, but also his family members including the children in a single policy. The single policy benefits will cover hospital cash benefit, major surgical benefit, domiciliary treatment benefit, benefit at the end of the policy term, and death benefit. All benefits will be available subject to the terms and conditions of the policy.

Subscription to the product will be open to individuals in the age group of 18 to 55 years. The benefits will be available until the policyholder turns at the age of 65. The policy holder’s children will be entitled to claim benefits up to 25 years of age. The unique feature of the policy will be the auto cover facility after the payment of a minimum of three years of premium.

The benefits would be available to the family members covered under the policy even after the death of the policyholder after at least 3 years’ premiums are paid. The other unique feature is of savings through investments in units. The premiums paid will qualify for an income tax deduction under Section 80 D. This means that individuals can claim a tax deduction of up to Rs 15,000 a year and senior citizens up to Rs 20,000 a year.

Although the first-year target is very ambitious, LIC has the advantage of million-plus agents. LIC has roped in reinsurer Munich Re to structure the new product. The life insurance corporation expects to provide cover to at least One Crores families within a year of the launch of its new health insurance product. It has the advantage of million-plus agents across the country. It is, however, yet to cement plans to set up a standalone health insurance company.

Health Plus is a standalone health insurance plan that provides cover to the entire family (husband, wife and the children) and is linked to investments made in the stock market. Units will be allotted to the policyholder based on the Net Asset Value (NAV) on the date of allotment. Health Insurance charges will be charged every month in respect of all the members covered by canceling an appropriate number of units out of the Policy Fund.  

2. Fundamental features of these health policies (issued by two life insurers):

The state-run Life Insurance Corporation of India (LIC) has already sold a total of 2.64 Crore policies across the nation so far. The life insurer has launched its first long-term unit linked health insurance scheme, ‘Health Plus’ for the first time in the country. The product provides insurance cover for the entire family (husband, wife, and children) besides hospital cash and major surgical benefits. The premium would remain constant throughout the entire term and would not increase with the yearly renewal.

One of the unique features of the LIC health product is that the principal insured can withdraw an amount equivalent to the actual expenses he has incurred in respect of any domiciliary treatment for himself or the other insured under the policy subject to the fund value in his account. The premium can be paid either on a yearly or half-yearly basis. The minimum amount of premium for a single person is Rs 5,000/-. The amount to be paid for both husband and wife is Rs 7,500/- and it goes up to Rs 10,000/- when two children come under coverage.

The maximum cover ceasing age for the plan is 65 years. The LIC of India has introduced its first health insurance policy Health Plus for the age groups between 18 and 55. Health-Plus is a long term health care product in a unit-linked platform that combines two health insurance covers, hospital cash benefit, and major surgical benefit for the entire family. Insurance giant, LIC is entering the health insurance business with the launch of “Health Plus” on across the country to provide health benefits to all people in the rural as well as urban areas.

“Health Plus policy is unique in its kind providing health benefits to the entire family (husband, wife, and children) in one policy and provides daily hospital cash benefit, ICU expenses, major surgical benefit, and domiciliary treatment benefit,” Since it is a unit-linked product, it allows the investment of surplus funds in the capital market, giving health benefits and capital market gains.

A person paying Rs15,000 yearly premium for his family can claim tax benefits under section 80D and can avail major surgical benefits of Rs 5,00,000 per member along with hospital cash benefit of a maximum of Rs. 2,500/- per day.

During the term of the policy, this benefit shall be available for 365 days for each member. Domiciliary treatment benefit can be availed twice a year. The policy also provides easy withdrawal of funds after three years. LIC has tied up with eight third-party administrators to manage claims under the policy. LIC would not use TPAs to settle claims. For claims settlement, it has tied up with Syndicate Bank, Axis Bank and Bank of America.

The company has claimed that the present cashless model (as utilized by the non-life insurers) is not in favor of the customer as many hospitals were not accepting the facility. Moreover, in many cases hospitals are charging more if a patient comes with any insurance cover that offers cashless treatment (which has already been identified as ‘moral hazard’ in insurance operations). LIC’s product will also be a long-term product of over 10 years. Health Plus cover is open for all Resident and Non-Resident Indians in the age group of 18-55 years, and it offers you all the above and lot more when you are planning to invest 15000/- you will get Rs. 2500/- for hospitalization.

The benefits are provided in the form of Hospital Cash Benefit, Major Surgical Benefit, and Domiciliary Treatment Benefit. The hospital cash benefit kicks in 48 hours after the assured have been admitted to hospital; in other words, you would have to bear expenses in the first 48 hours of treatment. Under this, a daily benefit is payable in case the insured is hospitalized either due to accidental bodily injury or sickness.

The major surgical benefit is a lump sum payment that assured gets regardless of the amount is being paid for the person, but it depends on the type of surgery the assured had. Under Domiciliary Treatment Benefit, one can withdraw an amount equivalent to the actual expense he/she has incurred in respect of any domiciliary treatment. However, this benefit is available only after the assured has paid the premium for the first three years.

The term of the policy is until the assured reaches 65 years of age. At 65, the policy matures, and the assured can get the benefit of market-related returns if there is a balance remaining after the claims he/she made during the policy term.

Reliance Life’s offer ‘Health +Wealth’ is also a unit-linked health insurance Policy and the plan takes care of the hospitalization expenses which include the following:-

1. Daily cash benefit;

2. ICU cash benefit;

3. Post Hospitalization expenses in the form of recuperation benefits (payable as a lump sum);

4. Death Benefit (is payable in one lump sum) on the death of the Principle Insured before the end of the policy term.

The amount of benefit will be equal to the fund value in respect of the base plan and top-ups if any.

The premium contributed by the assured is invested in fund option of his choice for a specified period as selected and units are allocated depending on the price of units for the fund/funds. Insurance charges will be deducted every month at the beginning of the first day of each policy month using 1/12th of the Hospital Cash Benefit rates.

One of the main advantages of these plans of both the Life Insurers is that unlike a pure health cover, some value goes back to the policyholder on maturity. Thus, people who hesitate to invest in health policy because they are not assured of getting back their invested premium at maturity may find some value in such plans. But experts in the current market, still advise people to first buy a simple mediclaim policy as a primary cover and then only to go for an extra benefit plan like this Life Unit Linked Health Insurance. The tax benefits available to customers with these policies will be subject to the existing tax laws.

3. Some clarificatory questions & their related answers:

1. Whether the Health Plus policy is taken by the proposer (either son/daughter being the principal member) covering his/her father& mother for Rs 5 lakhs each?

2. Whether Health Plus covers Dental expenses?

3. Whether this cover includes the Abroad Treatment(If required due to emergency)?

4. Can OPD expenses be covered under this scheme?

5. Whether Health Plus pays for Hospitalization charges?

6. Are pre-existing deceases covered?

7. Are there any exclusions for any other deceases?

8. Our major operations covered due to accidents for all the members included in the family?

9. I would like to take Health Plus Policy for myself (59) and my wife (57)- what is the provision?

10. Is this LIC Health Plus policy a normal mediclaim policy like as provided by General Insurance Companies for so many years? What will happen to the invested amount if the assured doesn’t claim any medical expense within 3 years term? Will it be a normal investment from where the principal insured can earn interest?

ANSWERS:

1) It can cover you as the principal insured (PI) only. Parents are not covered. The principal insured has to be your father & if he is below 55 years of age. It is only for persons between 18 yrs to 55 yrs of age are covered here. So, if your Father is below 55 years and earning, he along with your mother can go for one policy & you can go for a separate policy wherein you can cover your wife and children.

2) Dental expenses are not covered.

3) No – only Hospitalization and Surgery done in India are covered.

4) OPD expenses can be claimed as Domiciliary Treatment Charges. OPD under Domiciliary Treatment only after 3 years i.e. withdrawal from own funds non-taxable;

5) Hospitalization charges – Yes (up to Rs.2500/- per day, Rs.5000/- for admission in ICU Maximum 18/9 days in the first year, 60/30 in a subsequent year); Hospitalization charges can be claimed under Hospital Cash Benefits.

6) Pre-existing diseases are not covered.

7) All major operation due to accidents is covered and applies to all the members included in the policy, although some of the exclusions both partly/fully in major surgical procedures are applicable.

8) Yes – major operations are covered due to accidents for all the members included in the family.

9) Age limit at entry is 55 so both of you can not be taken this plan but you can take a Mediclaim Policy from non-life Insurance Companies.

10) LIC’s Health Plus is unlike Mediclaim insofar as nature of claims are concerned here if you obtain treatment & incur expenses you will get HCB(Hospital Cash Benefit as per the stipulated entitlement in the policy) i.e. the amount you have opted for between 250 & 2500 irrespective of actual charges whereas in Mediclaim you are reimbursed actual costs. Further after deducting the Allocation charge, Health cover charges & policy administration charges balance will be invested in equity related instruments (10%-50%) the corpus after 3 years can be got while surrendering the policy.

However, about 41-43% allocated in First Year & 18-19% in subsequent year will not be refunded & prima-facie the insured are entitled to claim Deduction u/s 80 D of the income tax. LIC’s Health plus differs from mediclaim in so far as quantum of health care expenses is concerned, unlike mediclaim which is a reimbursement scheme, health plus ensures hospital cash benefit & major surgical procedures as per the entitlement under health plus plan & no medical bills need to be submitted. In case during the term of the policy, no medical treatment obtained then the premium portion allocated towards unit fund can be encashed at NAV prevalent on the date of encashment after three years. LIC’s Health Plus is even better than any of the Mediclaim policy.

LIC’s Health Plus is a unit link plan, wherein your premium is invested in Govt. Securities & Equity Market after deducting the charges towards Hospital Cash Benefits & Major Surgical Benefits. The above two benefits have to be claimed in case of hospitalization/surgery. It has nothing to do with the invested amount. So, you can claim the fund value after 3 years, even if you have/haven’t claimed any medical expense.

This policy is having a wider scope than the other policies which are in the market presently, here the person who takes the policy is called as a principal insurer, can withdraw all the invested amount after the policy period is completed, he can take the entire amount based on the Unit rate as of that date (i.e. the withdrawing date), whereas in non-life insurance company’s health policies the money is not at all refundable after the expiry of the annual policy and the policy is renewable at the end of every year.

If the premium is not paid within the expiry date of the previous year’s policy, some benefits – like a cumulative bonus, cost of health check-up – can not be availed on renewal.

4. Problems relating the issue of income-tax relief of the policyholders:

The tax benefit in Life Insurance Corporation’s (LIC’s) first health insurance policy is being questioned by the Insurance Regulatory and Development Authority (IRDA). The insurance regulator has sought clarification from LIC on claims of tax exemption for a premium paid for ‘Health Plus’, the country’s first unit-linked health insurance policy.

Speaking on the sidelines of the 10th Global Conference of Actuaries, IRDA chairman CS Rao said, “As far as taxation is concerned, we have sought some clarification. This is an issue that needs examination. We will have to discuss this with the ministry and tax authorities.”

LIC officials said that they were not making any claims concerning tax exemptions. However, at the time of the launch, officials had said that as per Section 80D of the Income Tax Act, deduction from income would be available for premia paid for a scheme on the health of an assessee or his dependents, provided such scheme was from a company approved by IRDA, and that this scheme was a health scheme. In the past, tax breaks were available only for government-approved mediclaim schemes. But following liberalizations, this clause was substituted to include all health insurance schemes.

LIC had filed the product application under the regulation for health cover which is eligible for Section 80D benefits. Besides offering health insurance, even the accumulated funds are to be used for meeting medical expenses such as domiciliary treatment, as claimed by the officials.

The brochure for LIC’s health plans states that tax benefits are subject to the existing tax laws. Customers who have recently bought Life Insurance Corporation of India’s newly launched unit-linked health insurance scheme Health-Plus will be in for a shock, especially if they were counting on the fact that the entire premium amount will be eligible for tax benefits under section 80D. It is reliably learned that the Insurance Regulatory and Development Authority (IRDA) has written to LIC asking it to split the benefits.

As per this, only the portion of the risk premium that accounts for basic health cover will be eligible for benefits under section 80D, while the balance of premium that goes towards the unit-linked scheme will have to come under section 80C. An IRDA official said since the product was linked to investments and earned a return, as per the Income-Tax Act, that portion of premium was not eligible for benefits under section 80D.

Under section 80D of the Income Tax Act, a person gets a deduction on premium paid towards mediclaim up to Rs 15,000 (Rs 20,000 for senior citizens). Section 80C allows investment up to Rs 1 lakh to avail of tax benefits. This section covers all other investment options like the payments on mutual funds, life insurance premiums, and repayment of the principal amount of a home loan, national savings certificate, and even public provident fund.

Adding one more component in the form of a unit-linked health insurance plan will mean the investor will have to apportion smaller amounts to other investment avenues or forego the possibility of getting any tax benefit on this scheme.

The portion of the risk premium assigned to the health cover in Health Plus is smaller compared to the premium amount assigned to the unit-linked component. A senior LIC official said that given this development the corporation will have to discuss the issue further and consider its options. The official also added that LIC will structure future products in such a manner to give maximum tax benefit under section 80D.

This change, say, agents, is going to be a huge disadvantage to customers. “Most of my customers have been looking forward to a product that allows them health cover, has a tax benefit and also gives them a return on investment. That is the sales pitch we have been using,” says a Mumbai-based LIC agent.

                                      By Mr.Anabil Bhattacharya, Published in Life Insurance Today, April 2008