Understanding Insurance Limits: How much insurance coverage do you need?

How do insurance coverage limits work?

 

Insurance coverage limits usually limit the coverage scope. Some common examples are as follows –

• You might get coverage up to a specified limit. For instance, in health insurance plans, there might be sub-limits on specific coverage features like maternity coverage. In such cases, maternity cover will be allowed up to the specified policy limit. For instance, if the plan allows a maternity coverage limit of ₹50,000, coverage would be restricted to that amount. If you incur a higher medical bill of, say, ₹60,000, you will have to pay the excess amount of ₹10,000 while the health insurance policy would pay the covered amount of ₹50,0001.
• There might be a deductible, in which case claims up to the deductible will not be paid. If the claims exceed the deductible, the excess is paid. For instance, in an international travel insurance plan, the loss of checked-in baggage is covered. . For instance, with a deductible of $150, if you submit a $300 claim, the insurance company will only reimburse half of the claim amount exceeding the deductible. Therefore, if your claim is $100, the policyholder will need to cover the entire amount.⁴
• There might be a co-payment clause too. In such cases, you will pay part of the claim while the rest will be paid by the insurance company. For instance, say a health insurance policy has a co-payment clause of 10% if the insured’s age is 61 years and above. You buy the policy for your senior citizen father who is aged 66 years. There’s a claim, and you incur a medical bill of ₹1 lakh. In this case, the co-payment clause will apply. The insurance company will pay a claim of ₹90,000 while you will have to bear the co-payment amount of 10% of the claim, which is ₹10,000.
• In a life insurance policy, there might be age limits. This means the minimum and maximum entry age and maturity age are specified. You must fall within this age bracket to qualify for the policy. For instance, say the entry age is 18 years to 65 years. This means you cannot buy the policy for minors, i.e., children aged below 18 years. The life assured should be 18 years and above to buy the policy. Similarly, the maximum age is 65 years which means that if you are more than 65, you will not be able to buy the policy.
• Another example of a policy limit in a life insurance policy is the maturity age limit. This defines the minimum and maximum policy tenure that you can choose. For instance, say the entry age is 18 years to 65 years, and the maturity age is 28 years to 75 years. This means that if you are 18, you must choose a minimum policy tenure of 10 years to match the minimum maturity age of 28 years. You can choose a tenure of more than 10 years, but 10 years is the minimum. Similarly, if you are 65 years old, the maximum coverage tenure that you can choose will be 10 years since the maximum maturity age is 75. This means that the policy will not provide coverage beyond 75.
• A life insurance policy might also have a limit on the coverage tenure. The minimum and maximum tenure might be specified and your coverage should fall within the given minimum and maximum bracket. For instance, say the policy tenure is 10 to 20 years. This means that you can choose a term within this range. Coverage will not be allowed for more than 20 years.
• In the case of life insurance plans and the available riders, there might be a maximum sum assured defined. Coverage beyond this defined level will not be allowed. For instance, if a life insurance policy offers a sum assured ranging from ₹1 lakh to ₹10 lakhs, you will not be able to choose a coverage over ₹10 lakhs. The maximum coverage limit will be ₹10 lakhs.

Similarly, if a rider offers a maximum sum assured level, you cannot choose a higher sum assured. For instance, say you buy a term insurance policy for a sum assured of ₹1 crore. You choose the accident death benefit rider with the policy. The maximum rider sum assured allowed is ₹50 lakhs. In this case, even though the sum assured of the base policy is ₹1 crore, your rider sum assured would be limited to ₹50 lakhs.

 

Types of policy limits²:

 

Common types of policy limits are as follows –

1. Sub-limits:

Sub-limits mean a limit on the coverage amount. If there’s a sub-limit, coverage would be allowed up to the specified sub-limit.

2. Deductibles:

Deductibles represent your out-of-pocket expenses. If the claim is up to the deductible, it will not be paid. However, if your claim exceeds the deductible, the excess will be paid.

3. Co-payment:

Co-payment means sharing in the claim amount. In this case, you pay a part of the claim from your pockets while the insurance company pays the remainder of the claim amount.

 

Are there multiple limits in an insurance policy?

 

There can be multiple limits in an insurance policy depending on the type of policy that you choose. For instance, health insurance plans might have co-payments, sub-limits, coverage limits, etc.

 

How do you set insurance policy limits?

 

Usually, insurance policy limits are set by insurance companies. In some cases, you can choose a limit to get a premium discount. For instance, in health insurance plans, if you choose a deductible, you can get a premium discount.

 

What options are available when your damages exceed the policy limit?

 

If the damages exceed the policy limits, you will incur out-of-pocket expenses. You can also get another insurance policy to cover damages that exceed the policy limit. However, you will also have to check whether the additional policy would cover the excess damage so that your out-of-pocket expenses are minimised.

 

Conclusion

 

Policy limits are restrictive clauses which help insurance companies limit their losses. You can navigate these policy limits by choosing a policy which has lower limits or which offers a comprehensive scope of coverage. For limits that cannot be avoided, you can make a provision for out-of-pocket expenses to avoid financial strain.

 

FAQ

 

1. When is co-payment applicable in health insurance plans?

Co-payment may apply for some policyholders, usually senior citizens. In such cases, if the entry age is 61 years or above, the policy might apply a co-payment on all claims.
 

2. Are deductibles applicable in all types of insurance plans?

Deductibles are not applicable in all types of insurance plans. Specific plans have deductibles, while some don’t. You should check the policy coverage to understand the applicability of deductibles.

Reference

1.https://economictimes.indiatimes.com/wealth/insure/health-insurance/4-ways-to-increase-your-health-insurance-cover-as-it-may-not-be-enough-for-covid/articleshow/83980480.cms

or

https://www.business-standard.com/finance/personal-finance/waiting-period-fine-print-how-to-decide-on-your-maternity-insurance-cover-123083100304_1.html

2.https://economictimes.indiatimes.com/wealth/insure/health-insurance/4-ways-to-increase-your-health-insurance-cover-as-it-may-not-be-enough-for-covid/articleshow/83980480.cms?from=mdr

3.https://www.livemint.com/money/personal-finance/these-key-restrictions-in-your-policy-can-affect-health-insurance-claims-11665387136021.html

4.https://www.business-standard.com/article/pf/travel-insurance-claims-109052400016_1.html

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