In the previous instalment of Cover Note, we saw the angst over rising hospitalisation premiums and revisited the idea, “Why not do away with the basic policy and keep only a top-up policy with, say, a ₹10 lakh threshold? A medical expenses fund can meet the first ₹10 lakh, and further expenses can be claimed from a top-up policy.”

That would work up to a point. If you can’t get a basic policy or have failed to renew/lost coverage, then pick this option. If you are doing this exercise volitionally, how do you decide if it works? You have to start with some assumptions, educated guesses. What kind of hospitalisation am I likely to face in the future, and at maximum expense? If your answer is ‘less than ₹10 lakh,’ here are the options. If you have a basic policy, you can make a claim, and if you don’t, the medical expenses fund will come in handy. If you wind up with very expensive surgeries/hospital stays, the top- up policy will also come into play after ₹10 lakh is spent via the basic policy or from your pocket. So, a top-up is for catastrophic claims.

The math

The idea is sensible in principle. Look at the math. If you pay ₹50,000 for a ₹10 lakh cover, in 10 years, you would have paid half the sum insured as premium. You can be peeved if no claim is made. Of course, over 10 years, the premium would have doubled so you may have paid more than half the sum insured! So, saving this as a medical fund is a reasonable idea, but whether it works depends on age, medical status and whether you will keep the money for intended use.

The wins

Let us see the pros of the idea. We already saw that we save on the bigger premium for the basic cover and pay only the smaller premium for the top-up.

Plus, you don’t have to deal with claims for the first ₹10 lakh, saving quite some effort, paperwork and tension. No waiting for pre-authorisation, wondering if your claim will be paid in full, hesitating to spend on a higher rent room and stressing about cashless approval or chasing reimbursement claims.

So, if you can set aside ₹10 lakh and, for good measure, add the notional premium you would have otherwise paid each year, wisely invest it, make it grow and keep it intact till its time of use. The ability to do depends on economic status, liquid assets, stable income and whether or not a ₹10 lakh hospital bill worries you.

The fund option is more efficient economically than insuring the first tranche of risk. Large companies use this strategy of retaining small losses and insuring only catastrophic ones, thus saving on premiums.

The flip side

Guessing the type/size of claims isn’t easy. What if, instead of the rare ₹25 lakh expense, you repeatedly incur ₹5-₹10 lakh across many years? The base policy renews the ₹10 lakh cover every year and pays out. Your fund is a standalone protection and will run out after two/three such occurrences.

And then, there can be cancer or kidney disease with expenses recurring over many years, repeated hospitalisations and ICU care.

Not only surgery or hospital stay, but diagnostics and medication are costlier too. Add to this loss of wages or employment due to illness, and the situation would be unbearable for a middle-income family.

So, strategies must differ depending on financial resilience and assessment of healthcare needs. There is more, and we will see them in the upcoming instalment of Cover Note.

(The writer is a business journalist specialising in insurance & corporate history.)

Published on June 21, 2026