Sum insured in health insurance: Meaning and importance

Posted on: Apr 20, 2023 | | Written by:

Sum insured in health insurance: Meaning and importance

Published on April 12, 2023. EST READ TIME: 4 minutes

Imagine you or a loved one suddenly falls ill and requires medical treatment. As you rush to the hospital, if you have an existing healthcare policy, one of the last things on your mind is the financial burden that comes with healthcare. However, this is an important consideration, and this is where health insurance comes in. One critical aspect of health insurance is the sum insured, which is the maximum claim amount an insurance company will pay for medical expenses. Let’s delve deeper into why this sum insured in health insurance matters so much and understand how a top-up policy can help when the sum insured leads to a high policy premium.

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.

Let me explain with an example. Ayesha has a health insurance policy with a sum insured of Rs 2 lakh. Unfortunately, a few months later, 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, blood pressure, or heart conditions, you should opt for a high sum insured. This will help you get enough coverage for the said illnesses.

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:

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 because of two reasons. One, as we grow older, we 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 increase your premium also. The reason is 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

Choosing the right sum insured in health insurance is as important as selecting a healthcare policy. Knowing what is sum insured or what is sum insured in health insurance is crucial to understand why it is best to have enough sum insured to get maximum coverage rather than opting for a low sum insured because of low premium and then spending from your savings. Health insurance is meant to provide financial security, so why not make use of it with a sufficient sum insured?

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

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