Heard about mixing insurance and investments? That's just the stuff the unit-linked insurance plans (Ulip) have pushed, for long now.

The new trend goes a step beyond, mixing health insurance and investment. A case in point is the ICICI Prudential Health Saver, a whole life product.

Essentially, Health Saver provides for hospitalisation costs, as any mediclaim policy would. But it also builds a health savings fund, from which other non-hospitalisation related medical charges can be reimbursed.

Binay Agarwala, head - health insurance at ICICI Prudential Life Insurance, said there is a distinct need for such products.

"About 60% of health expenditure is out of hospital. There is a need for funding discretionary and frequent health expenses. Hence the health savings benefit builds a kitty for health expenses in future."

The Health Saver policy covers the entire family — the main policyholder, spouse and their first three dependent children. The principal holder should be the eldest and be between 25 and 55 years. The cover would continue until the principal policyholder turns 75 and the child turns 25.

One can choose an annual limit of Rs 2 lakh, Rs 3 lakh, Rs 5 lakh, Rs 7 lakh or Rs 10 lakh. The premium would vary accordingly. Going by Agarwala, the health insurance premium would change after three years.

The scheme covers hospitalisation costs if the policyholder is hospitalised for at least 24 hours within India. Insurance is provided for expenses on daycare treatment, charges incurred 30 days prior to being hospitalised and 60 days after being discharged.

The hospitalisation costs coveredinclude room rent for a single A/C room, whose rent is up to 1% of the annual limit per day. In case the rent shoots above 1% of annual limit, 20% of the charges (including hospitalisation, pre- andpost-hospitalisation, daycare procedure) are to be borne by the policyholder.

ICU charges, doctor, consulting, anaesthetist and surgeon fees, operation and other diagnostic and surgical material costs are covered.

Pre-existing illnesses are covered after two years, subject to acceptance by the insurance company. Note that these diseases need to be mentioned in the application or proposal form.

A medical checkup costing up to Rs 5,000, or 1% of the annual limit, is funded under the policy, provided the checkup is done once in two years, excluding the first policy year.

In case a person does not claim any amount during a particular policy year, his annual limit is increased by 5% of the base. But there is a cap of 25% on the overall increase over time.

As we have seen earlier, a healthsavings kitty is also built for future medical expenses under the policy. This kitty can be used to claim for medicine and drugs, dental, diagnostic expenses and others, which are not linked to any hospitalisation.

Claims from health kitty are to be made once a year with the minimum claim amount being Rs 1,000.

However, this is permitted only as a percentage of the entire kitty (see table), that too from the fourth policy yearonwards. One can draw up to 20% ofthe kitty in the fourth and fifth year,and half of the fund between 6th and 10th year. Only from the 11th policyyear can you claim 100% of the health kitty. This is done "because we needthe fund to grow till three years," says Agarwala. In effect, if you have a higher discretionary expense in the third policy year, you would fail to have any benefit from the health savings kitty. Also, if by claiming from the health kitty, the fund falls below 110% of your annual premium, then the claim may be denied or policy foreclosed.

As ICICI Prudential Health Saver is a health Ulip, the charges too are on the same lines - higher upfront. There is a premium allocation charge, which is 20% in the first year, 9% in the 2nd and 3rd year, 2% till the 10th year and nil thereafter.

In effect, your money grows less in the initial savings years as a lower portion is actually invested after deducting charges. Additionally, there is a fundmanagement charge of 0.75-1.5%depending on the fund the policyholder decides to invest his health kitty in.

The company offers seven funds based on the percentage a person wants to split between stock market and debt products.

There is a policy administration charge (PAC) to be paid every month. For a person opting to pay premium every month, the PAC shoots up by Rs 360 vis-à-vis a person who pays his entire premium once or twice a year.

Additionally, charges in the range of Rs 2,693 and Rs 11,888 have to be paid annually, depending on your age for the hospitalisation insurance cover. These charges are revised each year as per prevailing medical treatment costs.

Most of these charges are levied by cancelling the units an individual has to be allotted.

Perchance, one cannot surrender and withdraw any money from the health kitty under this policy like one can in an Ulip. "There is no surrender facility in the policy. All one can do is claim a health expense," says Agarwala.

As a result, the entire premium paid can be claimed for deduction under Section 80 (D). A maximum of Rs 15,000 can be claimed under an individual policy for deduction in a year. In addition, up to Rs 15,000-20,000 can be claimed for paying premium for one's parents' mediclaim cover, depending on whether they are senior citizens.

On the face of it, the policy covers most expenses during hospitalisation and otherwise from the health kitty. However, one should go through the exclusion list and terms and conditions carefully to know for sure.

For one, treatment resulting directly or indirectly from terrorism and hostilities such as the recent Mumbai attacks won't be covered.

Other exclusions include the charges incurred on a person donating organs to the policyholder, corrective or cosmetic dental treatment and expenses incurred for treatment of conditions diagnosed during hospitalisation where such conditions were not the primary reason for hospitalisation.

And what if the principal holderdies while the policy is in vogue? The insurance cover for the entire family will be discontinued and the funds built in the health kitty would be paid to the nominee.

In case the rest of the family takes a new policy within 60 days of termination, the terms and conditions and no-claim bonus of the previous policy would continue.

To conclude, it is always prudent to keep insurance separate from investment. And check to see if the plan you intend to take is one that guzzles money but does not dispense any when you need it most.

Khyati Dharamsi  / DNA-Daily News & Analysis Source: 3D Syndication