Have you decided to buy health insurance? Rest assured, you have taken the right step towards securing your health. The next step is to determine the amount of health insurance you need. This amount is referred as the sum insured or cover in medical insurance terminology.
Would 2 lakhs be enough? Or, should it be 5 lakhs or even more? Well, do not make a random calculation as you may end up being underinsured or over insured. Underinsurance may leave you with inadequate money if the medical expenses are more than the cover. Whereas; if you over insure, you may end up paying an unnecessary higher premium. The following factors will help you to arrive at an appropriate sum insured.
At a young age (25-35 years), you are in the prime of your health. A health insurance cover of Rs5-10 lakhs should be adequate. As the age increases, you can increase the cover by 10-15%. If you suffer from any pre-existing disease such as diabetes, hypertension or any other lifestyle/genetic condition, or are prone to health hazards in your profession, you should opt for higher cover irrespective of your age. Do note that lower the age and lower the health risk, lower the premium. Hence, it is always recommended to buy at an early age.
If you are taking a solo cover, you need lesser cover. However, in case of family health insurance (also known as family floater insurance) where all members are covered under one plan, you need to think of the higher cover. If one member utilizes partial cover, there needs to be sufficient cover left for other members.
Let’s say; you have taken a cover of Rs8 lakhs under family floater plan which includes yourself, your spouse, one child and one parent. Now, you claimed Rs4 lakhs from the insurance company after your parent was hospitalized. Then, you have only Rs4 lakhs left under the plan. Ask yourself if this balance cover is sufficient to meet the medical expenses that may arise again in the future.
Health cover as a percentage of your income is another way to look at the cover amount. Usually, experts recommend 50-100% cover of your income. For example, if your annual income is Rs7 lakhs, the cover should be between Rs3.5 lakhs (50%) and Rs7 lakhs (100%).
You may want to take medical cover equivalent to 100% of your income. But, can you afford the premium? Remember that higher the cover, higher the premium you have to pay. When you are evaluating different , check how much premium you need to pay and whether you can pay it after discounting all your other household expenses, EMIs, investments and emergency cash.
If you have incurred significant medical expenses in the past 2-3 years, you could factor in that amount as well. If you are planning to take Rs5 lakhs cover but have spent Rs1 lakh on hospitals in the previous years, the ideal cover is Rs6 lakhs.
As surprising it may sound, the type of hospital you may prefer getting admitted in the unfortunate event of medical emergency also determines the cover amount. The treatment and room rent charges vary as per the grade of the hospital. For instance, the private hospitals can assure quality treatment, but their bills can cost you a bomb. If the medical case is of such nature that you need to move to a bigger or a reputed hospital, you can expect expensive treatment. So, the choice of the hospital also plays an important role in the calculation of sum insured.
Whether you are covered under employee health insurance scheme by your employer or not, a personal health plan is always recommended. What if you quit or are laid off? You wouldn’t be eligible for employee health plan anymore. Hence, you should always determine the cover without considering employee health plan. The additional cover is your backup.
All these factors independently as well as collectively determine the health insurance cover. There is no fixed formula or thumb rule. It all depends on your personal requirements.