DT Personal Finance: Is there a need for Rs 1 crore health insurance cover?

CHENNAI: There was a time, when people used to buy a small Rs 5 lakh health insurance cover for the family. But nowadays, the insurers are competing with each other to offer bigger and bigger health insurance covers, many times to the tune of Rs 1 crore!

I know Rs 1 crore insurance is generally associated with life insurance. But given the rising cost of hospitalisation and medical inflation in general, there are multiple Rs 1 crore health insurance plans available nowadays.

To be fair, a Rs 5 lakh cover is not enough nowadays, say for a family of four. But whether we actually need a Rs 1 crore health insurance is something that is up for debate.

You might counter saying it is better to be over-insured than under-insured. And that is true. But higher insurance cover amounts come at additional costs. And that is what should be looked at in addition to a few other factors that we discuss later in this article.

If you look around and check the insurance claims data, it is very rare for hospital bills to go that high. In India, total hospitalisation costs above Rs 10 lakh are rare! While you may know of someone who spent more than that and you might have read about big hospital bills in newspapers and social media, these are not that common.

It is entirely possible that one may end up with a huge medical bill. Let’s hope it doesn’t happen. But if you look at probabilities, then the chances of that happening are very remote.

So, if Rs 1 crore health insurance is a little too much (unless you have a lot of surpluses to pay the premiums), then what is the right health insurance amount?

Before I answer that, let me tell you that it is always better to have one self-purchased health insurance, even if you have a corporate group health Mediclaim from your employer.

Now coming to the question of how much health insurance should you purchase. There is no one right answer here as different people have different number of family members, different health histories, and different (premium) paying capacity.

But if we were to consider a family with 2 adults in 30-40s and 2 children, then having a coverage of Rs 20-25 lakh will be sufficient in most cases.

You can go for such cover in 2 ways. You can either purchase a base health insurance of Rs 20-25 lakh. Or the other option is to purchase a smaller base plan of say Rs 10 lakh and then add a Super-Top-Up cover of Rs 15 lakh to it. The second approach is cheaper as top-up premiums are less.

Now the suggested Rs 20-25 lakh health insurance cover may be enough for most, but it may also not be enough for all. So, depending on your own unique requirements, you should choose a health insurance cover.

One more thing that you need to understand is that for now, you may even get a Rs 1 crore health cover at affordable rates. But this might be due to competition among insurers. It is entirely possible that the premium rates will increase drastically a few years down the line if insurers decide to. And then the same cover may start feeling unaffordable. And just having a large sum assured in health insurance isn’t enough.

You also need to check the sub-limits for various medical conditions, room rent limits, exclusions, etc. For example, if your Rs 1 crore policy has an upper limit of Rs 5 lakh for a particular surgery and your hospital bill is Rs 9 lakh, then you will have to pay the Rs 4 lakh difference from your pocket in spite of having a large Rs 1 crore cover.

So, keep these things in mind before you get tempted by the large ‘Rs 1 crore’ figure and decide to purchase health insurance.

— (Dev Ashish is a SEBI-registered investment advisor and founder of Stableinvestor.com, who provides fee-only investment advisory services)