Today there is an increased awareness about healthcare costs and mediclaim insurance that helps mitigate the risk of such costs. Most first time buyers wonder whether to take an 'individual' insurance policy for each family member or a 'family floater' policy.
Before we look at the pros and cons of each type, let us quickly look at what each of these policies mean. An individual policy means a separate policy for each of the family members. Let's assume that for a family of four members [husband (36), wife (30) and 2 children (6) and (4), respectively] the medical coverage is as under:
3,00,000 for each family member separately (total premium Rs 12,700) Rs 3,00,000 family floater for the family put together (premium Rs 8,800) Let's take an example to understand the impact of each scenario:
A. Let's say the wife is hospitalised and the expenses incurred are Rs 2,50,000. The impact is as under:
i. Rs 2,50,000 will be reimbursed under the wife's policy
ii. Rs 2,50,000 will be reimbursed under the family floater policy
B. Suppose first the husband is hospitalised (cost Rs 3,00,000) and then the wife is hospitalised (cost Rs 2,00,000).
I. The husband will get Rs 3,00,000 and the wife will get Rs 2,00,000 (total reimbursement Rs 5,00,000)
ii. The husband will use up the entire limit of Rs 3,00,000 and nothing will be reimbursed for the wife (total reimbursement Rs 3,00,000)
Clearly, the first option where each of the family members holds individual cover equal to what you would have taken as a family floater plan works best in all situations but it is also the more expensive option. The family floater plan offers flexibility in terms of utilising the overall insurance coverage among the family as a group.
However, against this supposed saving of Rs 3,900 per year there are several disadvantages of a family floater policy.
The policy will be renewed only till the senior-most member reaches the maximum age of renewability allowed by that company. As it stands today, at that stage the other family members will need to take a fresh policy without having the benefit of their claim history and preexisting disease cover that comes from continuous renewal of the policy.
The same thing applies to children who reach the maximum age (normally 21 years to 25 years in most cases) after which they will need to buy a separate policy for themselves without the benefit of the earlier continuous coverage that they have got under the family floater policy.
Most policies also make no specific provision for continuing cover of the surviving members in case of the unfortunate death of the senior-most member.
All in all, since a continuous cover and claim history is critical in this category and the cost of taking individual policies is only marginally higher, it makes no sense at all to buy a family floater policy for a so-called reduction in cost when the family is younger.
Incidentally, it makes even less sense to include your parents in the family floater (some companies have started allowing it), as they are likely to have claims as they age and clearly require their own individual policies.
