Rajat Shah recently faced a tricky situation of reduced claim settlement in spite of having two health insurance policies. The poor guy had taken two health policies for getting adequate coverage, but he was not aware that both the insurers (new and existing) needed to be informed about the other policy.
Like Rajat many people are not aware about the proper disclosure of the existing health covers and, therefore, more often than not face similar issues. In fact, one must be aware of the fact that while taking health insurance, one is required to fill up proposal forms, wherein the insurer asks for disclosure of any existing policy. The main purpose of asking this is because there is a contribution clause in most policies. Although the norms regarding the contribution clause have slightly changed recently, but before we could discuss that, let us first understand what a contribution clause actually is.
The contribution clause means that for the same 'insured interest' if there is more than one policy, then in case of any claim situation all the policies will contribute in equal proportion to the sum insured.
For example, suppose a person has two health policies for Rs 1 lakh and Rs 2 lakh each and he makes a claim of Rs 50,000. In this scenario the insurers will pay Rs 16,666 (policy with Rs 1 lakh sum insured) and Rs 33,333 (policy with Rs 2 lakh sum insured), respectively.
"We are finding more and more similar cases mainly due to steep increase in medical cost, which triggers the need for higher sum insured limits. Since most insurers are usually reluctant to issue policies beyond a certain limit of sum insured, depending on the age and the underwriting guidelines of the company at the time of renewal, the insured therefore has no choice but buy a second policy," informs Pavanjit Singh Dhingra, CEO, Prudent Insurance Brokers.
One may also go for another policy or policies if, suppose, one is having a policy provided by one's employer and the coverage is not adequate for the entire family. One may also like to have separate policies for one's parents as well as for one's spouse and kids. There may be, thus, many reasons for which one would like to go for multiple health covers.
Whatever be the case, however, only buying multiple policies is not enough. You also need to know how to use them efficiently and the procedure of making a claim, otherwise you are also likely to face the situation of reduced claim settlement like Rajat.
For instance, you need to inform about the existing policy or policies to the other insurer(s) while buying a policy or making a claim simply because if you do not disclose this fact, you are violating the terms and conditions of the health insurance contract and in case of investigation this could be termed as mis-representation.
"If a customer is holding more than one health policy, he has the choice to prefer the claim with any of the insurers. For example, if he holds an individual health policy with Insurer X and a group health policy with Insurer Y, he may choose to make his claim with any of the insurers," says Ajay Bimbhet, managing director, Royal Sundaram Alliance Insurance Company Ltd.
However, "it is mandatory that he declares the other policy or policies held by him in the claim form with the claiming insurer because the insurer on whom the claim is preferred has the right to invoke the condition of contribution (sharing of the claims in proportion to the sums insured under their respective policies) with other insurer(s)," adds Bimbhet.
Explaining further, Bimbhet says that in a scenario where the customer holds two policies for Rs 2,00,000/- each with Insurer X and Y, and he has a claim of Rs 3,00,000/, the insured can choose to claim Rs 2,00,000 from one insurer (by submitting all his originals) and take a settlement certificate from the first insurer and claim the balance with the second insurer with the photocopies of the claim documents.
It needs to be mentioned here that there have been some changes in the rules regarding claiming from multiple insurers. Prior to these rules, any claim from multiple insurers had to be in the ratio of coverage and you had to inform all the insurers while making a claim. But as per the new health insurance regulations, which came into effect just a few months back, the contribution clause will not be applicable if your claim amount is less than the sum assured of the insurer where you are claiming. And only if your claim amount is above the sum assured of the policy, the insurance company is allowed to impose the contribution clause.
This can better be understood taking into account the following scenarios:
SCENARIO ONE: Where claim amount doesn't exceed the sum insured under a single policy
In case of indemnity policies like Mediclaim or Hospital Reimbursement type policies, if the insured opts for more than one policy in the same policy period and the claim amount is less than the sum insured, then contribution clause will not apply.
For example, suppose Mohan has a Rs 2-lakh policy from Insurer A and a Rs 1-lakh policy from Insurer B, and the claim amount is Rs 1 lakh.
"In the above scenario, the insured has all the rights to choose the insurer by whom the claim is to be settled and the insurance company cannot impose any contribution clause and is bound to settle the whole claim as per policy terms and conditions," informs Suresh Sugathan, Head - Health Insurance, Bajaj Allianz General Insurance.
SCENARIO TWO: Where claim amount does exceed the sum insured under a single policy
If the amount to be claimed exceeds the sum insured under a single policy after considering the deductibles or co-pay, then even in this scenario the insured has all the rights to choose the insurer by whom the claim is to be settled. However, in such a scenario the insurer will settle the claim after applying the contribution clause.
"In case at the time of making a claim, the insured does not disclose about the other insurance policy or policies, then the insurer's liability is only up to the sum insured and the insured will have to share the rest burden all by himself," says Sugathan.
It is, thus, in your own interest to disclose about the other policies while making a claim.
SCENARIO THREE: Claim under Defined Benefit Policies
The contribution clause will also not be applicable where the cover/benefit:
1. Is fixed in nature, or
2. Does not have any relation to the treatment cost.
For instance, if the insured has got Defined Benefit policies like Critical Illness, Hospital Cash polices where claim does not have any relation with the treatment cost and the payable amount is fixed in nature, then the contribution clause will not apply and the insured can avail the benefit from all policies. A defined health insurance policy, in fact, is one where the benefits are paid out in a lump sum and the policy terminates. So, if the insured has taken, say, two critical illness policies, he/she can invoke both the policies and the insurers will pay the lump sum.
Thus, as per the recent notification from the Regulator on health insurance, the insurer can a claim from any insurer of his choice keeping in mind the policy terms & conditions, and the contribution clause will apply only when the actual expenses are in excess of a policy.
However, while making a claim, "the guiding principle may be to make claim under older policies where-in typically the policy has past the waiting period for a lot of diseases. At all times, the insured is well advised to read carefully all the terms & conditions of a policy, be aware of coverages and claim accordingly. It is better to take a decision guided by one's informed choice and based on the insurance company's claim settlement record and its brand reputation," says Ramesh Ramani, senior VP, consumer lines, Tata AIG General Insurance Co Ltd.