How to Decide Health Insurance Cover Amount?

Introduction

Health insurance is vital for managing medical expenses. It provides financial security during hospitalisation or illness. However, determining how to buy health insurance can be tricky if you are unsure about selecting the right cover amount, also known as the sum insured.

This guide will help you understand the cover amount in detail. 

What do you mean by health insurance cover amount ?

Think of the health insurance cover amount as a safety net that catches your medical bills. It is the maximum amount your insurance company will pay towards hospitalisation and treatment costs. So, choosing the right health insurance cover amount ensures adequate protection during medical emergencies.

How to decide the right cover amount when buying health insurance ?

People often overestimate their healthcare needs, buying unnecessarily expensive health insurance plans. That means you end up paying higher premiums you might not need. If you are unsure how to buy health insurance with the right coverage, here are some key factors to consider:

Check how medical bills can strain your finances

Evaluate how much a medical emergency could impact your finances. Consider potential hospital stays, surgeries, and medication costs. It will help you determine the minimum level of coverage you need. Remember, medical costs are constantly rising, so factor in a buffer for future inflation. This becomes the minimum threshold of coverage you need.

Shortlist plans that meet your needs

​Do you have a young family, pre-existing conditions, or live in a big city with premium healthcare costs? These factors determine your medical needs. Shortlist plans that address these needs with sufficient cover.

a) Lifestyle and family history

• Analyse your habits (smoking, alcohol consumption, sedentary work) to understand potential health risks. 
• Trace your family’s medical history. Pre-existing conditions like diabetes or heart disease may need targeted coverage. 

b) Specific health insurance needs and add-ons:

• Determine if you need coverage for, critical illness, and outpatient department (OPD) expenses. If yes, ensure they are all inclusions in the plan.
• Avoid co-payment in your plan. It requires you to pay a fixed amount for each claim, even under cashless hospitalisation. Check if it is an exclusion in the plan.
• Avoid sub-limits restricting the maximum amount the insurer pays for services like hospital room rent and treatments. Opt for plans without these limitations for comprehensive coverage.

Compare premiums

Once you have a shortlist of plans meeting your minimum requirements and desired features, compare the premiums offered by different insurers. This helps you understand the cost of each option and make an informed decision that balances coverage and affordability.

Consider tax benefits

Health insurance premiums qualify for tax savings (up to ₹25,000 paid for self, spouse, dependent children or parents and up to ₹50,000 if family or your parents are senior citizens (60 years and above)) under Section 80D of Income Tax Act, 1961. This can incentivise you to choose a higher coverage amount so you can potentially offset the additional premium cost through these tax savings.

The thumb rule for cover amount

A common rule of thumb for health insurance plans in India suggests aiming for a cover amount of 2-3 times your annual income. However, this is just a starting point. Consider all the above factors for a personalised and adequate cover amount.

Importance of choosing the right cover amount

Here’s why you must carefully plan the sum insured in health insurance:

The risks of less sum insured in health insurance

Choosing a low cover amount can leave you financially exposed during a significant medical event:

• Out-of-pocket expenses: You would be personally responsible for any costs exceeding the cover amount.
• Financial hardship: It can strain your savings and potentially lead to debt.
• ​Compromised care: You might have to opt for less expensive treatment options, potentially impacting your recovery.

The risks of excess sum Insured in health insurance

While it’s essential to be adequately covered, excessively high cover amounts can become a financial burden. Here’s why:

• Higher premiums: You’ll pay more for a higher cover amount, even if you don’t utilise it fully.
• Limited financial flexibility: It could restrict your ability to invest or save for other financial goals.

Key Takeaways

Finding out how to buy health insurance with the right health insurance cover amount requires careful consideration of your individual needs, risk factors, and financial situation. Balance affordability and adequate coverage to ensure your comprehensive health cover provides the perfect safety net. Seeking guidance from a financial advisor or insurance professional can be immensely helpful in navigating the process and arriving at the most suitable cover amount.