It is to take care of these contingencies, financial planners stress the need to build an emergency fund. Money can be used to bridge the gap between costs incurred and the compensation paid by the insurer. "With rising medical inflation, it is important to create a fund exclusively to meet any eventuality health care," said Pankaj Mathpal, a financial planner based in Mumbai.

However, very few people actually do this.
The good news is that some insurers are offering products that help build an emergency fund for medical expenses. After LIC, ICICI Prudential Life Insurance and Birla Sun Life Insurance, which offer such policies, the Money Back Health plan from India First Life Insurance is the latest health Ulip to hit the market.

How health Ulips work:
A health Ulip is a combination of two insurance plans-a normal mediclaim policy and a market-linked investment plan. The mediclaim covers hospitalisation expenses, while the market-linked plan builds a corpus for you. This money can be withdrawn by the policyholder for meeting his healthcare expenses or if his mediclaim policy does not cover his hospital bill fully. As in the case of a regular Ulip, the policyholder can choose the investment option for the health Ulip premium.

These plans are available as individual as well as family floater policies. They are renewed annually and though the total premium remains the same, the mediclaim premium goes up even as the investment portion comes down. Some schemes like the LIC Health Plus even offer OPD cover, hospital cash and surgical benefits. The premium is tax deductible under Sections 80C and 80D.

The corpus created by the Ulip can also be used for treatment of diseases not covered by the mediclaim policy. For instance, if the policyholder is hospitalised for a pre-existing disease before the waiting period, the mediclaim policy will not cover the expenses. "The Ulip, however, provides a comprehensive cover to the customer by allowing reimbursement for medical expenses not covered under his health plan," says Binay Agarwala, executive vice-president & head of products, risk management and corporate strategy, ICICI Pru Life Insurance.

One of the reasons people don't take health insurance (or term policies) is that the absence of maturity benefit makes them feel their money is going waste. The health Ulip bypasses this problem by offering a maturity amount. The fund value is paid to the policyholder at the end of the term; if he dies before that, his nominee gets the money.

Rules for withdrawals:
To make a claim, one has to provide actual bills or proof of expenses. Expectedly, there are some caveats. Most health Ulips don't allow withdrawals in the first year. For instance, you can withdraw money from the ICICI Prudential's Health Saver plan only after you have paid at least three years' premium. Birla Sun Life's Saral Health Plan allows withdrawals only after five years. Also, there are caps on withdrawals.

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In case of ICICI Prudential's Health Saver, you can claim only 20% of the fund value in the fourth and fifth year, over and above the mediclaim cover of Rs 3 lakh. It goes up to 50% from the sixth to tenth year and you can claim the entire fund value only after the tenth year. Some health Ulips also have caps on the total claim amount. India First's Money Back Health Ulip allows a maximum claim of five times the total sum assured during the entire term. So, if you have a cover of Rs 3 lakh, your total claim during the entire policy term cannot be more than Rs 15 lakh.

Source: [ET]