How Much Health Insurance Cover Must One Buy?

A WSJ report states that the average cost of hospitalisation in urban India is Rs 24,436 - and this number has almost tripled over the last decade. Inflation has not spared the medical sector, and treatment costs are soaring.

Another report states that medical inflation in India has risen to 18-20% currently! Scarcity of specialised doctors, advanced treatments and technologies, consumer awareness about hospital facilities, accessibility of quality healthcare, increasing chronic diseases - all contribute to long medical bills.

When you look at your health insurance cover or if you’re planning to buy health insurance, think about whether the cover amount is enough to comfortably sustain inflation and protect you and your family in the upcoming years. If you are hoping a 5-7 lakh cover is sufficient enough to safeguard you financially, we are afraid to say you’ll most likely be underinsured in the next 10 to 13 years.

So, a cover that feels adequate today might not be so tomorrow.

So, how do you pick the right cover amount? How do you arrive at a figure that will comfortably cover both you and your family? Let’s find out - in this article.

Why Do You Need Adequate Coverage?

Health insurance is a long-term investment. This means your policy is going to stay with you for your lifetime as far as you pay the premium on time every year.

The IRDAI stipulates that an insurance company cannot cancel your health plan in the middle of the contract unless there is a case of fraud or misrepresentation of facts in the proposal. Hence, you need to choose a coverage that protects you for your entire life against all odds.

• Opting for adequate coverage is essential because -

• A Health Insurance Policy Is An Investment For The Future

The most important thing you should keep in mind when purchasing insurance is that you are not buying it for today, but investing for tomorrow.

Say you are 25-30 years old today. Your chances of getting hospitalised for any sort of illness are very low as compared to when you are 50 or 55. Hence, when purchasing health insurance, make sure you select a sum insured that will adequately cover you for the rest of your life.

• Hospitalisation Costs Are On The Rise

Medical inflation is outpacing regular inflation and it is unlikely that hospitalisation costs fixed for certain treatments will remain the same in the future. Healthcare costs increase by almost 8% to 12% annually. The reason for this dramatic increase is due to the growing demand for healthcare and you will need extensive coverage that meets the ever-rising health costs.

• Upgrading In The Future May Be Difficult

As you grow older, you are more likely to be diagnosed with medical conditions. Insurance companies will consider you a risky individual due to which you may find it hard to get an upgrade.

If your insurer approves an upgrade with medical conditions, they may increase your premiums or apply conditions that will limit your coverage. So, upgrading your sum insured may prove difficult in the future. You should purchase an adequate policy today that will be sufficient in the future as well.

• How Much Coverage Do You Need?

Unforeseen circumstances that are beyond your control may arise in the future. It will be difficult to run from pillar to post to arrange large sums of money at a time where you’re already mentally stressed. This is why you should have a health insurance cover that is adequate, not only for today but also for the future.

If you are 30 years old today and you wish to purchase a policy, keep in mind that you are purchasing it for your life and that you need to factor in inflation to come up with an adequate sum insured for at least 30 or 35 years.

Suppose the highest hospitalisation bill today you could get is Rs. 5 lakhs. You should estimate how much you will need when you reach, say, 60.

Your sum insured should be calculated based on -

1. Your current age
2. Estimated hospital bill
3. A rough estimate of inflation (approximately 8-10%)

Formula for calculating the sum insured = (Current Hospital Bill X 1.06)^(60-Age)

In the above example, with an inflation rate of 8-10% year on year, Rs. 5 Lakhs will amount to a need of around Rs. 13-15 lakhs.

• How Much Cover Do You Need For A Floater Policy?

  A family floater is a type of health insurance where family members share a single coverage under a single policy. Imagine you buy a family floater for yourself and your wife. You and your wife are both undergoing treatment at the hospital at the same time. The same health insurance cover will cover both of your hospitalisation expenses.

  When purchasing a floater plan for your family, you will need to use the same calculation as above to determine the sum insured.

  The coverage needed for a floater policy for you, and your wife is 30 lakhs (15 lakhs + 15 lakhs).

• How Can You Buy Such A Huge Cover At An Affordable Rate?

  Imagine you own a health insurance plan with a base sum insured of Rs 30 Lakhs. While one policy with a big sum insured is easier to manage and may have lower limits than a smaller cover, it is quite heavy on the pocket.

  Buying a policy of 30 lakhs may seem a little overwhelming, so you might wonder whether to buy this entire sum as a base cover or opt for a super top-up policy. A super top-up is an extension you can buy to your base cover from the same or different insurance company.

  Check out our article on Super Top-up to know more

  Therefore, it is easy to take out a combined policy of 10 lakhs base cover and 20 lakhs super top-up cover (if you require 30 lakhs of cover). This combo will result in a premium cost of about 35%-40% less than one policy with a large sum insured.

  To ensure a hassle-free claim process, you should purchase both your base plan and super top-up policy from the same insurer. Buying both policies on the same date is ideal, but if that is not possible, try to buy them in the same month. By doing this, you will be able to keep track of both policies' renewals more easily.

Summing up!

A health insurance policy with an adequate sum insured is a necessity for everyone today. It is important to opt for a health insurance coverage that sufficiently covers your medical expenses today as well as in the years to come. Most importantly, when determining the coverage amount, remember to factor in medical inflation for at least 30-35 years.