The ever-increasing costs of medical treatments have made health insurance a necessity today. Moreover, you want the best possible treatment you can afford. The health inflation of India has increased to 8.4% in May and June 2021, thanks to the pandemic. Thus, it becomes inevitable to opt for the optimal insurance coverage that is needed for you and your family.
The dangers of being under-insured:
Being under-insured means that your health insurance coverage is not enough to cover your medical expenses or it does not cover the treatments you may require.
This happens because:
- People don’t want to pay high insurance premiums as they consider it an unnecessary burden.
- The young and reasonably healthy individuals often opt for the lowest sum insured with the barest coverage and low premiums.
- People may not account for their family medical history and unknowingly miscalculate future expenses.
- People also end up taking a bare-bones health insurance policy just for the tax benefits.
The price of being over-insured:
On the other hand, being over-insured depletes your hard-earned money unnecessarily. Here you choose a sum insured that is more than what is required by you and your family members. Although this is a rarity, you would end up paying very high premiums and wasting money this way.
So, the debate continues on what is the “ideal sum insured” that is needed for your health insurance coverage. To ease this concern, you need to first understand the factors to choose from while opting for optimal health insurance coverage.
How to choose the optimum sum insured?
To choose the optimum sum insured, account for the following factors:
- Age:
Take your age into account. When you are younger and in good health, you can take a lower sum insured and gradually increase it as the years go on.
Traditional wisdom believes that a sum insured of about Rs 5-10 lakhs may be enough to sustain your medical costs when you are in your 20s and 30s. When you hit the age of 40, you should take a higher sum insured to cover rising medical expenses.
However, post covid, the scenario is slightly different. There has been a significant rise in the demand for health insurance upto 71% in the post-covid world as against only 10% pre-covid.
Tip: However, it is easiest to opt for a high coverage at a younger age because the premium is low, you are relatively healthier and so chances of pre-existing ailments are low and you would surpass all waiting periods before you might actually need to utilise the plan for a claim!
- Lifestage and number of dependents:
If you are single, your requirement would be lower than if you were married. It also depends on the total number of dependents you have.
This is especially true for opting for a family floater health insurance plan as each member’s needs and future medical expenses need to be considered while deriving the optimal health insurance coverage.
- Premium paying capacity:
You need to be able to pay the premiums of your chosen sum insured. For this reason, your income plays a vital role in your optimum sum insured. Experts often advise that your sum insured premiums should not exceed 2% of your annual income. So if your annual income is Rs 10 lakh, then your premiums should not be over Rs 20,000.
However, if your income rises, you should ideally increase your health insurance coverage as well, as your lifestyle and comfort expenses would also tend to rise!
- Medical condition:
Account for any current ailments and the overall condition of your health. If you have an existing ailment such as diabetes, that will require frequent medication or doctor’s consultations, so you will require more coverage than someone who does not have this ailment.
Tip: You also need to weigh your family’s medical history. You need to keep in mind any genetic predispositions you could have. Some people, for example, may have cardiac issues or some types of cancer that run in their families.
For example, if you have a history of heart ailments in your family, you are at a higher risk and should thereby opt for higher coverage than others.
- Lifestyle:
Keep your current lifestyle and employment in mind. Some people have lifestyles that may cause health issues at later stages. For example, you may be a chain smoker or you may drink every day. These can lead to concerning health issues down the road.
You may also work at a high-stress and high-intensity job that does not allow you much time to exercise and relax. Lifestyle diseases have become part and parcel of the modern world. It would be remiss of you to not take that into account when choosing your sum insured.
Also, you need to consider the average spend of your family’s hospitalisation and the type of room preference. This would play a role in selecting your health insurance coverage.
Thumb Rule for calculating the Optimal Health Insurance coverage:
In developed economies, people have health insurance coverage equal to 7 to 10 times their annualised income. However, the case is different in a developing economy where the cost of living is also comparatively low.
There is a simple thumb rule for calculating the optimal health insurance coverage, which is:
Health Insurance coverage = 50% of your Annual Income + 3 years’ hospitalisation expenses
For example, your Annual Income is Rs 20 lakhs and you have spent about Rs 5 lakhs for hospitalisation in the last 3 years, then your health insurance requirement would be Rs 10 + 5 = Rs 15 lakhs only.
However, this is just an estimate and it may differ from case to case.
Summing up:
Health insurance may feel like a burden but it plays a major role in protecting our loved ones and our finances when hit by medical crises. Don’t forget to factor in inflation every time you opt to renew your health insurance. Choose the optimum sum insured and comprehensive coverage for yourself and your family members.