How much health insurance cover
is required?

Health insurance is integral to comprehensive financial planning, many people realised the importance of health insurance during the pandemic. Expenses related to hospitals and medical care has been escalating at a rapid pace, the growth rate of medical costs has been at an unprecedented 7.5% per annum over the past decade. This is much higher than the average inflation rate in India.

Importance of health insurance in India: 

Health insurance has become important due to higher life expectancy, higher stress levels leading to poor health, poor lifestyle creating medical conditions early on in life etc. The pandemic saw an unprecedented increase in the number of health insurance policies availed by individuals in the past 2 years.

Today, everyone irrespective of age has become vulnerable to falling sick and seeking hospitalisation. The ecosystem is rapidly changing, there is a need to ascertain the right amount of cover required to ensure that you can avail the appropriate medical care irrespective of fund requirement without undergoing financial stress. 

The employer may provide mandated health insurance for a salaried employee through group insurance. The quantum of which will depend upon the hierarchy of the employee in the organisation structure, higher up executives typically have a higher cover as compared to the employees at lower levels. Many times, such salaried employees fail to assess if the covered offer would suffice given their requirements and ecosystem.

This is a vital aspect to conduct, any gap identified should be duly bridged by availing a new plan from the insurance company which should be customised as per the needs and requirements of oneself and his / her family. 

Unlike term insurance cover, assessing the quantum of health insurance requirements can be quite complex. However, just like term insurance, health insurance plans should also be availed early on in life. The probability of illness increases with age, this factor could jack up the premiums considerably. The premiums would be lower during the early years, moreover, every insurance plan would have a waiting period for multiple diseases, critical illnesses and other aspects, the waiting period would have elapsed by the time the actual requirement for the benefit arises.

This way, the policyholder will be able to enjoy the benefit seamlessly. It may seem like a futile effort to avail health insurance policy early on in life, however, it will be one of the best decisions that you will make in your lifetime. 

Why is it important to avail the right amount of health insurance?

Some of the reasons why the right amount of health insurance is critical: 

• • Reduce your financial stress, 

• • Get the right medical treatment without having to worry about the expenses, 

• • Hedge the risk of creating a dent in your finances, leading to non-attainment of financial goals. 

What factors determine the coverage amount? 

Some of the factors that determine the coverage limit areas are mentioned below: 

• • Type of treatment preferred:
  • These days, health insurance companies offer health insurance plans that not only cover allopathic treatment but also facilitate alternate treatments including Yoga, Ayurveda, Unani, Siddha, Homeopathy. Many of the health policies offer simultaneous claims for the same ailment from both lines of treatment. This is an emerging trend since alternate therapies complement well with allopathic treatments for holistic healing of the individual.
    
    Further, there are many individuals, especially senior citizens who prefer using the alternate treatment procedures since they show evidence of low or no side effects. Also, the cost of alternative treatment is lower as compared to allopathic treatment. The Government has been trying ways to promote alternative treatment to enable equitable access to healthcare facilities among the entire populace.
  • Current Age: 
  • As indicated earlier, the earlier one avails the right insurance plan, the better. Often, during our earning years, we fail to understand the importance of availing of a health insurance plan. This is indeed a cardinal mistake, availing of a plan early on will allow for lower premiums. Also, the waiting period will be over by the time you reach an age when the benefit would be required.
  • Many of the pre-existing diseases have a waiting period ranging between 2-3 years or even higher. Availing a plan during your early years will ensure that you have comprehensive coverage as you age. This is an ideal proposition as age and probability of illness are directly proportional.
  • During the early years, your coverage requirement could also be lower, over time you could consider topping up the plan to ensure that you are aligned to your enhanced requirement and growth in costs in the ecosystem. 

• • Present health condition:
  • If you are a healthy person, then in all likelihood, the coverage requirement could be lower. On the other hand, if the individual is already prone to various illnesses and has a poor immune system, then the coverage required would be higher.
    
    Many of the medical policies which are for a higher quantum of sum assured, require medical examination during the underwriting process to assess the exact risk undertaken by the insurer. Some of the vital medical tests are carried out to ascertain the health condition of the applicant, this is one of the critical factors in not only determining the premium payment but also deciding whether to accept the application or reject the same.
    
    It is a rare phenomenon that an application would get rejected, however, higher premiums may be charged from a person with poor health condition vis-à-vis a healthy individual who avails the health policy with the same features from the same insurer.

• • Family health history:
  • 
    Many of the comorbid conditions are considered to be genetic, a few of the critical illnesses are also considered to be genetic. Hence, family history plays an important part in the amount of coverage required, in fact, family history also influences the risk factors and hence, the premiums.
    
    Someone with both parents with comorbidities or heart conditions would need a larger cover as he runs the risk of acquiring some or all of these conditions over the long haul. Further, as in the case of health conditions, the premiums here too would differ among applicants with clean family history and a poor history of health in the family.
    
    Note: However, the influence of this factor is relatively lower than that of the factors which are directly related to the applicant’s conditions.

• • Affordability:
  • While requirement and ecosystem are important factors, one should not lose focus on the fact that the budget considerations are equally significant. A health insurance plan should be a part of your comprehensive financial planning, it is not an investment and hence, should not cause stress in your financials and create a situation where you are unable to meet your other commitments including household and investments.
    Ascertain the budget under which you would want to avail a health insurance policy and compare across multiple insurance vendors to arrive at the vendor that offers optimal coverage at competitive premiums. Here again, no factor can be a sole determinant of availing the policy, you need to weigh every factor and evaluate the most important criterion and accordingly zero in on the plan.
    
    For example, if you were to get a high coverage for the budgeted premium from an insurer whose claim settlement ratio is extremely poor, then it would not make sense to associate oneself with an insurer where the possibility of claim settlement is low.
    
    Similarly, one has to evaluate the market reputation and legacy of the insurer and ideally choose one like CarePal Secure that has an established name and reputation. It is also important to note that if you are unsatisfied with the insurer then you can always port your policy with all the benefits accumulated until then to a new and well-known health insurance company like CarePal Secure. 

• • Ecosystem:
  • If you had availed of a health cover plan 10 years ago, the same amount of coverage would be insufficient at present. Your ecosystem might have changed, for example from a single person, you may have transitioned to a married man, you may have to include your children as well now in the health policy, your health condition could have deteriorated significantly.
    
    Similarly, the medical costs are escalating rapidly, the treatment you could afford 5 years ago with a mere lakh could be costing you 3 times due to tech advancements, finer equipment, better line of treatment etc.
    
    Another aspect is the emergence of infectious diseases like coronavirus, which has plagued the nation. The ecosystem keeps evolving, the health insurance companies think of innovative ways to align with these changing requirements.
    
    Similarly, an individual should endeavour at regular intervals, preferably around personal milestones or severe changes in factors pertaining to the external ecosystem, to revise the coverage and align with the requirement. 

• • Type of lifestyle: 
  • Despite an increase in life expectancy, there has been a drop in the quality of health among individuals. Some youngsters are showing signs of developing comorbidities and have deteriorating health conditions. This can be blamed upon their lifestyle choices like smoking, drinking, partying etc.
  • Their work environment can also be one of the reasons, today’s environment is extremely competitive and the stress levels are unprecedented. Many among the current generation have desk jobs and as they say, ’Sitting is the new smoking’. This has also led to deteriorating health conditions among the individuals, which in turn is reflected in the amount of coverage required to match the medical expenses that one may incur in today’s times.

• • Requirement of add-ons/customisation:
  • Not everyone’s requirements are the same, this is something that the health insurance company has learnt over the very many years. In their endeavour to cater to the specific needs of individuals, they carefully curate add-ons or customisations in the form of riders. Depending on the necessity one could choose any of the riders to customise their plan to provide optimal and comprehensive coverage. Some of the popular riders/add-ons are maternity rider, critical illness rider, hospital cash, super top-up etc., 

Scenario analysis 

• An individual in the early stages of life:

• A single individual in an early phase of life, looking for a basic health insurance plan, should ideally look for a sum assured not less than Rs. 3-5 Lakh (provided all the factors are conducive and, in his favour). Given the cost of medical treatments these days and the increasing vulnerability of all individuals irrespective of age, there is a need for coverage that will help deal with expenses arising out of any sudden illness which may require a complex line of treatment.
  Also, the chances of claims during the younger years are relatively low, thereby facilitating your qualification for no-claim bonus or cumulative bonuses, the sum assured will rise year on year.
  Some insurance companies offer a no-claim bonus of over 100%, which could work in your favour as the sum assured will increase substantially over the long term.

• • Health insurance requirement for a family:
  • Even if you are the only earning member in the family, you must ensure that your family is adequately covered for unforeseen medical expenses. This feature in health insurance is unlike that of term insurance, where the life cover is drawn upon the earning member only. In the case of health insurance, the illness and subsequent medical expenses of any family member is likely to create a dent in your financials.
    
    A single illness in the family can push you into poverty or bring your much-cherished crashing down. Hence, if you have health insurance provided by the employer, you should ideally check if it covers your family and whether it is adequate.
    
    You will have to include your children as well whilst planning your health insurance coverage, the vulnerability of individuals irrespective of age has increased significantly. Some of the treatments meted out to children could be quite expensive which could create financial stress in an already anxious situation. Based on your assessment, you should avail of a family floater plan which offers coverage for the entire family.
    
    Typically, a family of 4 individuals (2 adults + 2 children) would require at least Rs. 10 lakh sum assured. Of course, the numbers are only indicative and one has to evaluate one’s condition based on the various factors discussed above.
    
    Note: It is interesting to note that most of the policyholders in Inda who have opted for health cover for their families have opted for around Rs. 7 lakh to Rs. 9 lakh.

• • Senior citizens or parent’s requirement for health insurance:
  • As you age, the probability of illness increases, the complexity of the illness also increases if the individual is suffering from co-morbidities. Even a minor surgery can cost anywhere between Rs. 2 lakh to Rs. 5 lakh including post-hospitalisation recovery and medicines.
    
    There is a growing trend of senior citizens being vulnerable to many new medical conditions which are a result of extreme pollution, stress over mental and physical health. It is important to consider the health condition and adequately plan a sum assured.
    
    One needs to also remember that coverage that may seem sufficient today may not be sufficient 5 years down the line, one has to evaluate the future inflation and the possibility of health deterioration and accordingly plan.
    
    It is also apparent that senior citizens require higher coverage upfront given their higher probability of illness and lower probability of availing no-claim bonus which could potentially increase the sum assured in the long run.

There is no fixed formula for calculating the adequate health insurance coverage that is needed for yourself and your family. However, there is a simple thumb rule for calculating your health insurance coverage.

Your health insurance cover should be equivalent to:

50% of your annual income + 100% of total hospitalisation expenses in the last 3 years.

Note: Remember this is only a thumb rule, one has to still evaluate individual conditions and factors and adequately plan. You need to consider all factors and opt for optimal coverage as soon as possible. If a premium is a concern, remember to opt for Super Top Up health insurance plans, wherein you can increase your coverage over and above the base coverage, without a pinch in your pocket! 

Frequently Asked Questions

What factors influence the health insurance coverage amount?
Some of the factors which influence the health insurance coverage amount are: 

(a) Type of treatment preferred
(b) Current Age
(c) Present health condition
(d) Family health history
(e) Affordability
(f) Ecosystem
(g) Type of lifestyle
Requirement of add-ons / customisation

Why is the right sum insured important in health insurance plans? 

Some of the reasons why the right amount of health insurance is critical:
(a) Reduce your financial stress
(b) Get the right medical treatment without having to worry about the expenses
(c) Hedge the risk of creating a dent in your finances which could lead to non-attainment of financial goals

Which category of applicants requires a relatively high sum assured?

Senior citizens require a high sum assured, if they suffer from co-morbidities, then the requirement would be even higher. 

What type of health insurance plan is suitable for an individual with a family?

A family floater will be suitable for an individual with a family where the cover can be shared by all members of the family. 

Why should one avail of health insurance for non-earning members in the family?

Even if you are the only earning member in the family, you must ensure that your family is adequately covered for unforeseen medical expenses. This feature in health insurance is unlike that of term insurance, where the life cover is drawn upon the earning member only. In the case of health insurance, the illness and subsequent medical expenses of any family member is likely to create a dent in your financials. A single illness in the family can push you into poverty or bring your much-cherished crashing down.