Sum insured in health insurance: Meaning and importance

Posted on: Apr 20, 2023 | | Written by: HDFC ERGO Team

Sum insured in health insurance: Meaning and importance

Health insurance is important because it helps you manage unexpected medical expenses during emergencies. With hospital and treatment costs rising every year, even a single medical issue can become a big financial burden. That’s why it is important to buy a health insurance plan with an adequate sum insured. It ensures you have enough coverage to pay for your medical bills without stress, so you and your family can focus on getting the right treatment. Let’s understand what is sum insured in health insurance and why choosing the right amount is important.

Importance of Selecting the Right Sum Insured in Health Insurance

While buying a health insurance policy, choosing the right sum insured in health insurance is very important to get maximum financial protection. With rising healthcare costs, you will pay more from your pocket if your sum insured is insufficient. This will not make sense when you have a healthcare plan that doesn’t provide comprehensive coverage in times of need. Also, if you need to make multiple claims in a policy year, the sum insured should cover the medical costs almost entirely. In case of insufficient coverage, if the sum insured in health insurance gets exhausted in one hospitalisation, and unfortunately, there’s another health emergency, you have to bear the entire medical expenses.

For example:

Ayesha has a health insurance policy with a sum insured of Rs 2 lakh. Unfortunately, she met with an accident and was hospitalised for around 15 days. However, during the same policy year, she had another medical emergency, which cost around Rs 1.5 lakh. She had to bear the entire cost of Rs 1.5 lakh because the sum insured of Rs 2 lakh was exhausted in the first instance of hospitalisation. She could have avoided paying Rs 1.5 lakh from her pocket if she had an adequate and right sum insured.

With the right sum insured, there’s no financial stress as you are better prepared financially to handle any medical emergencies or treatments.

Before choosing the sum insured in health insurance, understand your medical needs and medical history; otherwise, a single hospitalisation can unsettle your budget.

What is the Ideal Sum Insured in Health Insurance?

There’s no one-size-fits-all policy for choosing the sum insured. The ideal sum insured depends on several factors, such as:

1. Age:

For people in their 20s, experts recommend a sum insured ranging between Rs 2-3 lakh because the chances of making any claims when young are less. Similarly, for a family with 2 kids, a sum insured of at least Rs 10 lakh is ideal.

2. Income:

The sum insured should be sufficient as well as affordable. Experts suggest the health insurance policy premium should not exceed 2% of the policyholder’s annual income. For instance, if your annual income is Rs 5 lakh, you should opt for a health insurance policy with a maximum premium of Rs 10,000.

3. Lifestyle:

The sum insured depends on the insured’s lifestyle. You are prone to lifestyle diseases if you have a hectic and sedentary life with no physical activity or do not follow a healthy diet. You must buy a health insurance policy that offers coverage for various lifestyle diseases.

4. Family medical history:

If you have a family history of diabetes, high blood pressure, or heart conditions, you should opt for a high sum insured. This will help you get enough coverage for the said illnesses.

Things to Keep in Mind While Choosing the Right Sum Insured

When selecting the right sum insured for your health insurance plan, you must consider the following:

1. Medical inflation:

Choose a sum insured that can cover increasing healthcare costs over time.

2. Your age:

Consider your age when selecting the sum insured for your health plan. As you get older, the likelihood of health problems rises, so you should opt for higher coverage. Picking the right sum insured now can help you avoid large medical expenses in the future.

3. Your health:

Take your current health into account when choosing your sum insured. If you have pre-existing conditions like diabetes or high blood pressure, your medical costs are likely to be higher. A higher sum insured ensures you are protected against regular doctor visits and treatments.

4. Your lifestyle:

It plays a role in determining your sum insured. Stressful routines, unhealthy eating or lack of exercise can increase the risk of serious health issues. A higher sum insured gives you financial protection against lifestyle-related illnesses.

5. Type of plan:

The kind of plan you choose affects how much coverage you need. An individual plan may require lower coverage, while a family floater should have a higher sum insured to cover all members. Having the right coverage prevents unexpected out- of-pocket expenses.

6. Your location:

Consider where you live when choosing your sum insured. If you live in a smaller city, a lower sum insured may be enough. However, healthcare costs are higher in metropolitan cities, so you should opt for higher coverage.

7. Future needs:

Consider upcoming life changes such as marriage, children or ageing parents who may depend on your policy.

Should You Buy Health Insurance with Higher Sum Insured or Add Top-Up Policy?

Both have their pros and cons. To help you make an informed choice, let me take you through both options:

Health Insurance Policy with a Higher Sum Insured:

A higher sum insured comes with higher premiums. But, at the same time, you can be at peace during hospitalisation as the insurer will take care of all the expenses. The claims are also settled without any issues because you have a wide scope of coverage.

For example:

You have a sum insured of Rs 50 lakh, and you need to undergo surgery costing Rs 20 lakh. As you have a high sum insured, you can breathe easy and don’t have to look around for arranging funds. If you had a lesser sum insured, say Rs 5-10 lakh, it would have been a huge financial burden. So, a health insurance plan with a higher sum insured can keep you stress-free despite the high premium.

Top-Up Health Insurance Policy:

Top-up policies are more affordable than a health insurance policy with a higher sum insured. But the drawback of a top-up health insurance plan is that it comes with a deductible, and that’s why the premium is less. A deductible is a portion of the claim amount that the policyholder must pay before the insurance company starts paying for the same. Before choosing a top-up plan, it is important to consider the deductible; a higher deductible will mean a lower premium and vice versa. It depends on the policyholder’s needs, budget and the type of insurance plan. Buying top- up health insurance plans is best if you already have a standard health insurance plan, but the sum insured is insufficient. If you are buying family health insurance and have a good budget, you can opt for a health insurance policy with a higher sum insured. This is because the sum insured is shared among all the family members.

What is the Best Time to Increase Health Insurance Cover?

The best time to increase health insurance coverage is when you find the cover is insufficient for your and your family’s requirements. Experts recommend upgrading the policy when you are young for two reasons. One, as you grow older, you are vulnerable to diseases, and health insurers consider it a risk. Therefore, they charge a higher premium to mitigate the risk. Second, due to a compromised immune system and other medical conditions in the later years of life, the insurance provider may or may not upgrade your health insurance policy.

When Can I Increase My Sum Insured in Health Insurance?

You can increase the sum insured in health insurance only at the time of renewal. But remember, this will also increase your premium. The reason is that with an increase in the sum insured, your coverage will also increase, thereby increasing the insurance provider’s liability. Likewise, you can also decrease the sum insured based on your requirements and budget.

Conclusion

The sum insured is a key part of any health insurance policy, as it decides how much financial help you get during medical emergencies. Therefore, it is important to consider factors such as your age, current health, and city of residence when choosing it. With the right coverage, you can focus on your treatment without worrying about costs.

FAQs

1. What does the sum insured mean in health insurance?

The sum insured is the maximum amount your insurance will pay in a year for hospitalisation or medical treatment. If your medical bills exceed the sum insured, you will have to pay the excess amount out of pocket.

2. How is the limit of the sum insured decided?

The sum insured depends on factors such as your age, health, lifestyle, city, and the type of policy you choose. It is essential to choose wisely, as higher coverage provides better protection but also incurs higher premiums.

3. Can I decrease my sum insured amount later?

You can lower your policy’s sum insured when you renew your health insurance.

4. What is the minimum sum insured offered by insurers?

Minimum sum insured is the lowest coverage limit you can select in a health insurance plan.

Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.

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