Sounding Board. How much health insurance do you need?

The penetration of health insurance in India is very low. Of the country’s 1.25-billion population, less than a fifth is covered under any kind of health insurance. Even among those covered, the average sum insured is less than ₹2 lakh, according to data from the Insurance Information Bureau of India. Given the high cost of medical procedures today and the double-digit inflation in healthcare costs, buying adequate cover is very important.

Not having enough health cover could force you to forego some medical procedures due to insufficient funds at your disposal. Else, you may have to use up your hard-earned savings that were originally intended for children’s education or marriage.

But the importance of health cover notwithstanding, our conversations with a few people with medical insurance policies revealed that the decision on the amount of health cover was influenced by the agent or the amount of tax savings they wanted.

Vikas Jha of Gurgaon, who is in his early 40s, holds a medical claim policy from National Insurance Company. It is a family floater plan covering Vikas, his wife and son for a sum of ₹4 lakh. When asked how he decided on the amount of cover, he said, “I have a ₹4-lakh cover for family through my company; so I thought an additional ₹4 lakh would be enough…”

This is a mistake that many make. Corporate insurance policies cover you only till you are employed with the company. What if you move to another job and the new employer doesn’t provide group insurance? Or, what if the company lays off staff and you lose your job? So, on the personal front, be prepared with adequate medical insurance. For a family of three with one member in the 40s, a cover of at least ₹15 lakh will be needed.

Take a look at the cost of treatment for some common diseases in the table, you will then agree on the amount of cover suggested.

There are many financial tools on the internet today that help you decide on the amount of insurance cover. One such tool on BigDecisions.com gives you the amount of cover needed once you state your age, family size and the region in which you reside.

Gaurav Roy, Co-founder and Head-Products of BigDecisions.com says this tool works on an algorithm that uses the client’s age to find out the most-frequently occurring diseases among those in his age group and tables out the cost of treatment for those ailments. Paramount Healthcare, one of the largest third-party administrators in the country, provides data to BigDecisions.com.

Debika Goswami of Delhi bought a health cover five years ago just after she got married. That time she was looking for a maternity cover and was not willing to spend too much on premium. On a Google search, a Max Bupa policy caught her attention. She immediately signed up for a family floater policy from the insurer, not giving much thought to the amount of cover. “I asked for a premium quote and it was affordable for us. They said for ₹2 lakh cover, we would get about ₹20,000/30,000 of maternity cover, so we didn’t bother to check for anything else…”

A ₹2 lakh sum insured health cover may not suffice at all. Debika Goswami needs to buy health insurance for at least ₹8/10 lakh. This higher cover will also provide for a higher coverage on maternity expenses. Even a normal delivery in a high-end hospital in the city costs about a lakh of rupees these days.

Many young couples ask, “How much health insurance is enough?” When you start, initially, take a small cover, then increase it as you cross new milestones in your life, such as delivery of a baby, or adding parents to the policy after they retire or, say, you cross 40 years.

The healthcare needs of each individual are specific to their age and medical history. Do not, however, forget to count on medical cost inflation. Most people forget about their health policy once they sign up for it.

You have to increase your cover every year in tune with inflation in healthcare costs. A look at the treatment cost of common ailments over the last five years reveals an average annual increase of 10-11 per cent. Some insurers increase the sum insured every year by 5-10 per cent without the client asking for it, but this is only if there has been no claim on the policy that year.

Saurabh Srivastava’s case is quite different from others. He purchased a health policy five years ago when he started working. He took a ₹10-lakh cover as his agent said it would get him a tax deduction of ₹15,000. Though the means of arriving at the cover amount was not right, it has given Saurabh more than adequate cover. For a single male in his 30s who does not smoke or drink, a ₹5/6 lakh cover would suffice. The premium paid towards health insurance policies is eligible for tax deduction under Section 80D of up to ₹25,000 from the current financial year. Senior citizens can get a benefit of ₹30,000. Say, you have a family floater and you are covering your dependant senior citizen parents also in the policy; then you can get deduction of up to ₹55,000. The entire ₹55,000 will be deducted from your income to arrive at the taxable income and you need not fret about paying the premium.

Narayanan of Chennai has a floater health policy that covers him, his wife, child and two parents. The sum insured is about ₹3 lakh. Narayanan did not want a higher cover because the ₹3 lakh policy itself costs him ₹35,000 as annual premium. One way to get a higher insurance cover but not end up paying hugely is to take a top-up plan which is way cheaper. These plans have a threshold limit and only claims above that limit are paid. Narayanan can cover himself, his wife and child in a top-up plan and state the sum insured of the current policy as the threshold. So, any hospitalisation expenses over and above ₹3 lakh for three members will be covered by the top-up plan.

A sum insured of ₹12/13 lakh will suffice for the three.

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