Why Many Health Insurance Top-Ups Don’t Pay When Claims Pile Up

A decade ago, a Rs 5 lakh health insurance policy felt reassuring. Today, it feels inconsequential with hospital bills routinely running into several lakhs. Medical costs in India are rising at close to 14 per cent annually, nearly three times the pace of general inflation, according to the ACKO India Health Insurance Index 2024. Hospital rooms that once cost Rs 3,000 a day now routinely cross Rs 6,000. Procedures considered “major” expenses, such as angioplasty, knee replacement, gall blader and cataract surgeries or even a C-section delivery, to name just a few, have become standard line items on hospital estimates.

At the same time, health insurance premiums have begun to climb just as sharply because the premiums reflect risk, which has changed dramatically. Longer life expectancy, higher incidence of lifestyle diseases, expensive medical technology, and post-pandemic healthcare utilisation have all pushed claims upward. Insurers are responding with higher premiums, especially for comprehensive base policies.

As policyholders age into their late 40s and 50s, renewal premiums often jump 20-25 per cent in a single year.

For many middle-class families, this has created a quiet dilemma: stretch the budget to keep increasing the base cover, or accept that their insurance may fall short when it matters the most.

This widening gap between soaring medical costs and rising premiums has turned top-up and super top-up health plans from optional add-ons into essential financial tools as they offer a higher cover at lower premiums, thanks to their structure. But these plans are often misunderstood.

Let’s understand how these plans can solve your health insurance coverage dilemma.

Base Health Cover May Feel ‘Enough’ Until It Isn’t

Ask most families about their health insurance coverage, and the answer is confident: “We have a Rs 5 lakh cover” or “we upgraded to Rs 10 lakh”. The confidence is understandable, but misplaced.

A single intensive care unit (ICU) stay for dengue or pneumonia can cost Rs 3-4 lakh. Knee replacement surgeries now hover around Rs 5-6 lakh in decent hospitals and cancer treatment routinely crosses Rs 15 lakh. Even so-called routine surgeries in metro hospitals can exhaust a mid-sized policy.

Says Venkatesh Naidu, chief executive officer at BajajCapital Insurance Broking: “The problem is not negligence; it is anchoring. Families anchor their sense of adequacy to older medical bills, not current realities. Medical inflation silently erodes the real value of health cover year after year. By the time families realise their cover is insufficient, they are already inside a hospital, dealing with estimates rather than hypotheses.”

Top-Up Plans Soften The Blow

Top-up and super top-up plans allow families to add a second layer of protection at a fraction of the cost. A Rs 15 lakh super top-up can cost less than increasing a base policy by Rs 5 lakh, particularly for older policyholders. In simple terms, they offer scale without proportional cost, a way to prepare for large medical expenses without inflating annual premiums substantially.

How does that happen? These plans work in combination with a base policy and come with high deductibles. This is the amount till which top-up insurance does not provide a cover, and expenses up to that limit have to be borne by the policyholder or the base policy, after which the top-up policies get activated.

For instance, if you have a claim of Rs 10 lakh, and have a base policy of Rs 5 lakh and a top-up policy of Rs 15 lakh with a Rs 5 lakh deductible, the first Rs 5 lakh of the claim will be covered by the base policy and the top-up policy can be used for the balance Rs 5 lakh.

The problem is that these plans are often misunderstood. Says Naidu: “People buy these plans because the premiums look attractive, not because they understand how deductibles work. The biggest risk is not underinsurance, but misaligned expectations during claim. When coverage is misunderstood, it is mistaken for product failure, when it is really a planning gap.”

Many policyholders assume the deductible is paid once and then forgotten. Others expect partial payouts even if the deductible is not fully crossed. In reality, the deductible resets every policy year and must be crossed completely before the plan pays anything.

This misunderstanding is often the reason for disappointment.

Top-up vs Super Top-up

Within this category, there are top-up and super top-up plans, as both get activated after a deductible is crossed. On the face of it, they look similar, but the difference becomes apparent when it’s time to pay the hospital bills. Though both activate after a deductible is crossed, they behave differently at the time of a claim.

A top-up plan applies the deductible to each individual hospitalisation. If the deductible is Rs 5 lakh, the plan pays only when a single hospital bill crosses that threshold. A super top-up, however, looks at cumulative medical expenses over the policy year. Once the total hospital bills cross the deductible, it covers all subsequent expenses regardless of how many hospitalisations they arise from. This distinction becomes critical during large or repeated claims.

Medical emergencies rarely arrive one at a time. A child’s appendicitis surgery, a parent’s cardiac complication, a viral infection requiring hospitalisation may all occur within the same policy year. Individually, none may cross a Rs 5 lakh deductible. Collectively, they can drain savings.

This is where many top-up plans fail. That’s because they look at each hospitalisation separately. Multiple mid-sized claims may never trigger the top-up at all.

A super top-up, by contrast, begins paying once the cumulative threshold is crossed, protecting families from repeated financial shocks.

Says Amarnath Saxena, chief technical officer-commercial, Bajaj General Insurance: “The concept of an aggregate deductible makes super top-up policies more practical, as they account for total medical expenses across the year rather than per claim. This has made them the preferred choice in the market today, offering clarity, convenience, and extended financial security once the base cover runs out.”

In today’s health environment where chronic conditions, post-infection complications, and age-related ailments overlap, this cumulative protection is no longer theoretical, but a practical choice.

Let’s understand through an example. Let’s say, you have a Rs 10 lakh base policy and a Rs 20 lakh add-on with a Rs 10 lakh deductible. Let’s also assume you have three hospitalisations in a year, with claims of Rs 4 lakh, Rs 3.50 lakh and Rs 4.50 lakh each, totalling Rs 12 lakh.

In this case, none of the individual claims cross Rs 10 lakh, which means the top-up insurance plan will pay nothing. However, since the total claim amount of Rs 12 lakh exceeds the deductible amount of Rs 10 lakh by Rs 2 lakh, the super top-up will pay this extra amount.

Says Naidu: “Most people don’t realise that top-ups are event-specific, while super top-ups are year-specific. Healthcare costs rarely arrive as one clean, isolated event anymore. It’s the cumulative burden that catches families off guard, and that’s where super top-ups provide real financial resilience.”

What Should You Do?

Match The Deductible: Start with the deductible. Ideally, match your base policy sum insured with it so that the transition during a large hospital bill is seamless and there are no out-of-pocket expenses.

A common misconception is that a super top-up must be bought from the same insurer as the base policy. While this may simplify claims, it is not mandatory. The Insurance Regulatory and Development Authority of India (Irdai) regulations allow customers to purchase super top-ups from any insurer.

Says Saxena: “Purchasing both from the same insurer offers clear advantages, simplified claims, reduced paperwork, and smoother coordination during emergencies. However, opting for a different insurer provides flexibility of choice, competitive premiums, and the ability to customise coverage.”

Get Adequate Coverage: The most common mistake households make while choosing a top-up cover is opting for too low a sum insured. It’s important to assess the sum insured realistically: would it be enough for a major hospitalisation in your city, given how sharply costs vary across locations? Also, the coverage should be assessed based on the number of family members covered in a single policy.

Says Saxena: “Many add only a small amount over their base policy, assuming it will suffice, but this often leaves families underinsured during major medical emergencies. Since super top-ups are relatively inexpensive, extending coverage meaningfully, such as pairing a Rs 5 lakh base policy with a Rs 10-15 lakh super top-up offers far stronger protection against rising medical costs.”

Top-Up Or Super Top-Up: According to insurers, young earners may manage with a top-up policy initially when they have individual covers. However, those with a family floater insurance plan covering multiple family members will be better served by super top-ups. Families with children and anyone with ageing parents should view super top-ups as essential, not optional.

Focus On Practical Features: One should also check for strong cashless hospital networks nearby, which can make emergencies far easier to manage. Focusing on practical features such as day-care procedures, pre- and post-hospitalisation cover, and ambulance benefits will help as these features are used most commonly. One should also look at restoration benefits which reset coverage after exhaustion, and waiting periods for pre-existing diseases.

“Finally, ensure the policy offers lifetime renewability, so your cover doesn’t end when you need it most. A good super top-up cover should feel like a natural extension of your base plan—simple, seamless, and strong enough to handle a large medical expense,” says Naidu.

Ensure Coverage Is Wide: Today, many procedures use advanced technologies, such as laser or robotic surgeries. Ensure your plan includes modern treatments, so you are not caught off guard.

Ultimately, the decision should be guided by coverage adequacy, ease of claims, and long-term affordability. By choosing adequate coverage and exploring options beyond a single insurer, households can secure cost-effective protection against unforeseen medical expenses.

Says Naidu: “Top-up and super top-up plans are not about buying more insurance. They are about restructuring protection in a way that reflects how healthcare is actually consumed today. The difference between financial stability and stress often lies not in how much cover a family has, but in how that cover responds when costs accumulate.”

In a system where premiums rise faster than incomes, the smartest insurance decisions are not about comfort, but about design.

Things To Keep In Mind

Every top-up or super top-up plan has a deductible. It gives no cover till that limit. Buying a base policy equal to the deductible helps get complete coverage.

Purchasing both the base policy and the top-up policy from the same insurer can reduce paperwork and make coordination smoother, but it’s not mandatory.

Buying a top-up from a different insurer may give you more flexibility and features. So comparing both options is important.

Young earners may manage with a top-up initially, but those with family floater plans covering multiple family members should prefer super top-ups.

Ensure that both the base and top-up policies cover modern medical treatments using advanced technologies.

sanjeev.sinha@outlookindia.com