What is contribution clause in a health plan?

What is contribution clause in a health plan?

Increasing medical inflation is a major reason why people are complementing their existing medical insurance plans with one or more additional policies. Since rising treatment costs have made multiple policies a necessity, it is important for consumers to understand associated issues. One such issue is the contribution clause.

Understanding the contribution clause

The contribution clause comes into effect if a person has multiple policies to cover the same insured aspect. If a claim is made in this situation, all the policies pay the claim amount in proportion to their respective coverage.

Application of the contribution clause

Let us consider three general multiple policy scenarios to understand the situations where the contribution clause does or does not apply:

1. Defined benefit policies In such policies, the coverage or benefit available is already fixed and unaffected by the actual treatment costs available. In this case, multiple benefit policies will pay out as expected without the contribution clause being invoked.
2. Indemnity policy with claim amount not exceeding sum insured in a single policy – In the past, insurers sought to share the financial burden of a customer with multiple policies by invoking the contribution clause. At present, however, if the claim amount is less than the total available sum insured under a single policy, the customer’s other policies will not be required to share the costs. This is beneficial for the customer because he can protect any no-claims bonus that may have accrued under his other policies.
3. Indemnity policy with claim amount exceeding individual sum insured of all held policies – The contribution clause will come into effect if the claim amount exceeds the coverage available under any single policy. Then, the insurers will share the claim amount in proportion to their coverage.

Do remember, however, that given the applicability of the contribution clause, it is the responsibility of the insured to inform his insurers if he buys or possesses any additional health policy.

What is ‘free look period’ in a health insurance plan?

What is ‘free look period’ in a health insurance plan?

Buying a health insurance policy is never easy for a layperson. Even if you have managed to steer through the fog of insurance jargon and successfully purchased a policy, the terms and conditions on the freshly printed policy bond can still spring unwelcome and unexpected surprises. Having recognized this possibility, the IRDA worked in a free look period for life and health insurance plans some time ago. The free look period is rather like a returns policy on retail goods: it allows the customer a 15-day window from the date of receipt of the policy to read the policy bond carefully and, if required, to return it.

Why is the free look period useful?

The free look period is primarily the buyer’s weapon against mis-selling, but is also a useful tool for correcting errors on the policy bond. The free look period allows the buyer to ensure that the health insurance policy matches his/her pre-purchase expectations perfectly. In case of a mismatch, the buyer has 15 days in hand to contact the insurer for modifications. If the required modifications are not possible, the buyer can return the policy and get his/her money back.

How much money will be refunded?

The buyer who acts quickly and within the free look period is refunded the entire premium paid into the policy minus the expenses incurred by the insurer in the process. These insurer expenses include things like stamp duty, administrative expenses, and the costs of medical tests. Despite these deductions, cancelling an unsuitable policy during the free look period is more cost-effective; policy cancellations once the free look period has passed is subject to higher costs due to surrender charges.

Which health plans have the free look feature?

At present and under the new guidelines introduced by the IRDA, all newhealth insurance plans with duration of more than one year are subject to the free look facility. Per the previous guidelines, health insurance policies with a tenure of less than three years did not have the free look feature.

How can you exercise the free look option?

The buyer must submit a written application for the same to the insurer within 15 days of receiving the policy document. Some insurers require a free look request form to be filled in and duly submitted. In addition, the buyer must submit the original policy bond, the first premium receipt and an indemnity bond, as well as mention his/her bank and address details (for refund of premium), date of receipt of the policy, agent details, and reason for either seeking modifications or an outright cancellation. 

What should you check for during the free look period?

On receiving the policy bond, the buyer must read the document thoroughly. Particular focus must be placed on the following:

1. Names and contact details of all policy holders (look for errors of content and spelling)
2. Policy term and sum assured of the base policy as well as for additional riders
3. Inclusions, exclusions and restrictions (waiting periods for pre-existing diseases, caps on insurance, etc.)
4. Voluntary and involuntary deductibles
5. Claim settlement procedures

Above all, look for discrepancies and for conditions that could prove to be a disadvantage for your medical future.