Premium or Coverage: Which Matters More in Health Insurance?

Posted on: Sep 28, 2023 | 3 mins | Written by: HDFC ERGO Team

Premium or Coverage: Which Matters More in Health Insurance?

When it comes to choosing an insurance plan, are you torn between the allure of a lower premium and the security of a substantial coverage amount? If you’re nodding in agreement, you’re not alone. Just as a sumptuous meal is more than just its price tag, an insurance plan’s value extends beyond its premium, and therefore, making an informed decision is necessary. Let’s try and unravel the conundrum surrounding premium cost versus coverage amount by understanding the related nuances.

Difference between premium cost & coverage amount

Premium is the amount you pay the insurer to keep your insurance policy active and avail of its benefits. A health insurance premium can get paid monthly, quarterly, or yearly. If not paid on time, the policy will lapse, and you will be out of coverage. If there’s any medical emergency during this period when your policy is not active, the expenses have to be borne by you. The health insurance premium cost depends on several factors such as type of plan, sum insured, age, medical history, lifestyle, occupation, etc.

The health insurance coverage amount, also known as the sum insured, refers to the maximum claim amount you will receive as compensation from the insurance company. A high coverage amount will lead to a high premium. The right amount of coverage depends on factors like the age and health conditions of yourself and your family members, the type of healthcare facilities you prefer, financial condition, etc. Although there’s no ideal health insurance sum insured that a person should opt for, it must be sufficient to meet the medical needs considering the rising costs of healthcare. So, experts recommend a minimum health insurance coverage amount of Rs 5 lakh or at least 50% of your annual income.

What is more important?

While buying a health insurance policy, both premium and coverage amount are important, and you must find the right balance between the two. The primary purpose of health coverage is to provide financial protection against unforeseen events. If you choose a policy with a lower health insurance premium, you may not get adequate coverage and end up paying more from your pocket. Similarly, it’s important to choose a health insurance sum insured that is sufficient to meet the specific needs of your family. Opting for a low sum insured because of the low premium may not be a good idea, as it can dent your savings because of more out-of-pocket expenses. So, choose the plan wisely based on your specific needs and affordability. To know which policy works best for you, it is advisable to research and compare the different plans offered by insurance providers. You can also talk to an insurance expert who can guide you with the best policy that suits you.

How to calculate the right coverage amount you need?

When it comes to the right coverage amount of your health insurance policy, there’s no one-size-fits-all formula. You need to consider various factors to ensure you and your family are adequately protected, and these are —

• Family size

If you are planning to buy a family floater to cover your entire family, you should opt for a high sum insured, as the coverage amount gets shared among all the members. You also have to take into consideration the health conditions of all the members and choose the right coverage amount.

• Assess your medical needs

If you or your family has any medical history or pre-existing clinical conditions, you may need a high sum insured.

• Future needs

It’s not just your current health condition but also your future needs based on which you should calculate the right coverage amount. For instance, if you plan to start a family or need to undergo some medical procedures, you must be financially prepared for the expenses.

• Consider medical inflation

With healthcare costs on the rise, your coverage amount must be adequate to cover your future medical expenses.

• Evaluate your current coverage

Review your existing coverage from time to time to check the policy coverage and exclusions and ensure you have enough coverage.

• Deductibles and co-pay

A deductible is a portion of the claim amount you have to pay before the insurer starts paying up. A co-pay is the percentage of the claim amount you must pay. While calculating the coverage amount, decide the deductible and co-pay amount as per your affordability.

• Affordability

Higher the coverage amount, the higher is the health insurance premium. So, opt for an amount that fits your budget.

Make sure the insurance coverage is reviewed periodically, as your health and financial conditions can change over time. It should meet your needs in an emergency.

Conclusion

Both premium and coverage amounts are important factors while shopping for a health insurance policy. You cannot choose one over the other, but maintain the right balance to ensure adequate financial protection against any adversities. While over-insuring yourself will impact your budget because of high premium costs, being underinsured will defeat the purpose of health coverage if you have to pay more from your pocket. So, assess your health needs and financial capability, and compare various policy options before purchasing a health insurance plan with the right premium and coverage amount. If there’s any critical illness in the family, consider adding critical illness insurance to your base plan.

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

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