Topic 4: How much Health Insurance do I need?

With the substantial increase in medical cost & new developments in medical technology – it’s a very common question these days – How much Health Insurance do I need?

This question has become even more important after the launch of PMJAY – where poor will get Rs 5 lakh health coverage.

How much Health Insurance do I need?

Unlike life insurance, there is no straight formula to assess how much health insurance coverage you should have. You need to understand the type of policies available and then match any of them with your perceived medical needs. There are health plans tailored to meet various needs from those of a student to those of elderly people. Each of these is beneficial at different stages of your life cycle. So, you should evaluate plans according to the phase you are in.
Identifying adequate health insurance coverage
Identifying health costs is the most difficult part of medical insurance as there is uncertainty regarding what type of illness may arise. But a reasonable assessment can be made based on the cost of medical treatment you might have to incur in the case hospitalization. Since the cost of medical treatment varies from city to city, the first level of assessment should be a hospital whose services you would avail in case hospitalization is required. So, think about the following before you decide how much health insurance you require:
  • Which hospital would be your first choice for treatment, if any medical emergency arises?
  • How much is the approximate cost of hospitalization there?
This will give you an estimate of your potential healthcare costs and should form the basis of your decision regarding how much health insurance coverage you need to purchase. There is always the chance that you will have to resort to bigger hospitals in case of specific illness; so keep that in mind too.
Amount of health insurance required
Medical inflation is estimated at 15% in India. The prices of medical procedures and healthcare have been rising steadily.  Therefore having health insurance is a basic requirement. The important point is to determine the amount of health insurance. The following are factors to consider for health insurance –
Age – When you are in your 20s, you generally do not need a big cover. You can consider a health insurance of Rs2,00,000 to Rs. 3,00,000 for yourself and then increase it gradually as you enter your 30s and 40s. It is good to increase it by 10%-15% at intervals.
If you need to buy a health cover for your parents or spouse and children, then you should consider their age, lifestyle and health. You can look for family floater plans.
Affordability – Health insurance premium is an important factor. You need to determine what how much you can afford. When you are in your 40s or 50s, it is important to have a substantial amount.
But if you cannot afford, it is still better to buy a smaller cover as any financial assistance during a medical emergency is useful. Percentage of your income goes towards the premium.
Lifestyle – Do you have a healthy lifestyle or are you a person who has a high-stress life or has no time to exercise or follow a healthy diet. If your job entails travelling a lot, it might be difficult to have a regular exercise routine and you might have to eat unhealthy meals. In such cases, it is important to have a good amount of health coverage.
Family History – If your family has a history of obesity, diabetes or any other such lifestyle disease, there are high chances of the next generations to get it. It is then important to have the right health cover.
Requirements – There are different types of policies other than simple health insurance. There are accident covers, senior citizens plans, critical illness insurance plans etc. You have to determine your requirements and buy appropriately.
There are other factors too. If there have been high medical expenses in the past, it might make sense to take a substantial cover. If you want to ensure a certain hospital, a certain doctor or the type of patients facilities in hospitals, you need to make sure your health cover takes care of these requirements. If you are employed, the employer might be offering you a group employment plan. Check its coverage and buy more insurance if required. It may not be very comprehensive and have limitations.
Minimum Health insurance required – thumb rule
If you are looking for a simple thumb rule –
  • You can consider that your sum assured should be sufficient to take care of artery bypass in a hospital of your standard. or
  • It can be 50% of your income – if you are earning Rs 15 Lakh, you can consider 7.5 Lakh policy. or
  • It should be minimum Rs 5 Lakh.
It is important to assess the different factors and requirements before buying a plan as if you are unable to pay the premium, your plan will be discontinued.

Insurance is an important component of financial planning. It is best to treat it as financial protection rather than an expense to get the best benefits from it.

And if you have any doubts and can’t understand what plan to pick, choose a wise advisor who could help you in same!
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