Importance of Sum Insured in Health Insurance

If you are the first-time health insurance policy buyer, it is important that you know about the different aspects of the policy before buying one. 

All the learning will make it easier for you to browse through the available options and purchase one that best suits your requirements. One thing that most health plan buyers confused about is the sum insured. It is one of the critical aspects of the policy, and it is necessary to understand it in detail to use your health plan effectively.

What is Sum Insured in Health Insurance Plans?

Insurance policies like health insurance, motor vehicle insurance, and home insurance work on the principle of indemnity. In other words, these types of insurance plans compensate the policyholder for a loss covered by the policy. The extent of the damages that can be covered in a year is known as the sum insured. 

So, if we are talking about health plans, the sum insured is the maximum amount that your insurer will pay in a year for your hospitalisation. You must pay any amount beyond the sum insured of a health plan.

For instance, let us assume that you have a health insurance plan with a sum insured of Rs. 3 lakhs and you were hospitalised twice in the year. The hospital bill in the first incident was Rs. 1.80 lakhs and in the second incident, it was Rs. 1.5 lakhs. 

So, your total hospitalisation bill for the year was Rs. 3.30 lakhs. As the sum insured of your policy is Rs. 3 lakhs, your insurer will only compensate you up to this amount in a year. In this scenario, you will be responsible for paying the additional Rs. 30,000 from your pocket. 

If you do not file any claims or if the hospitalisation cost was lower than the sum insured, then the insurer is not liable to refund any money at the end of the policy tenure.

Importance of Selecting Right Sum Insured

With the rising cost of healthcare in the country, a medical emergency could quickly deplete your savings. While purchasing a health plan is a smart way to tackle medical inflation, selecting the right sum insured in health insurance is equally important.

Let us try to understand this with an example. 

Mr Sharma is 35 years old and earns Rs. 50,000 per month. Out of this, he saves close to Rs. 15,000 every month. By the time he reached 45, he had managed to save around Rs. 20 lakhs.

But all the hopes and dreams came crashing down when he was diagnosed with Pulmonary Stenosis, a medical condition that affects the blood pumping capacity of the heart. Open-heart surgery was recommended for the same.

Apart from all the physical and mental anguish, Mr Sharma now also needs to arrange funds for the expensive surgery.

Three things can happen now-

Mr Sharma has	What would be the scenario?
1. No Health Insurance	All or most of the lifetime savings would be depleted, and additional financial assistance like loan might be required
2. Health Insurance with Low Sum Insured	The insurer will only provide coverage up to the sum insured while Mr Sharma would be responsible for most of the expenses
3. Health Insurance with Adequate Sum Insured	The insurer will cover most of the surgery expenses, and Mr Sharma retains most of his savings

How to Select the Right Sum Insured?

As seen in the example above, having an adequate sum insured is crucial to secure your health effectively with health policy. This is an important reminder to everyone who is planning to purchase a low sum assured health plan, mostly to only save taxes.

So, how do you select the right sum insured? Here are the factors you should look out for-

• Age-

The chances of suffering from a medical condition increases as you age. So, someone in their 40s would surely need a higher sum insured as compared to a healthy individual in his/her 20s or 30s. 

• Current Health Condition-

Medical conditions like diabetes, cholesterol, etc. often run in the family. If the seniors in your family have such conditions, there is a high probability that you might suffer from them in the future. Get added protection by going for a higher sum insured. 

• Current Life Stage-

If you are planning to get married or start a family, you will have more people depending on you and your savings. A higher sum insured could bring in an extra layer of safety.

• Lifestyle-

Demanding professional life, high-stress levels, and poor eating habits could abundantly impact your health in the future. Stay prepared with a high sum insured health policy. 

Demystifying Sum Insured in Health Insurance

The primary purpose of Health Insurance is to provide financial coverage in case if you suffer from a medical condition so that you can keep your savings protected. Low sum insured defeats this very purpose and can deplete all or most of your savings in case if you need medical help. 

So, at the time of purchasing a health plan, select the sum insured as carefully as possible. You can also get in touch with the insurer to help you make the right decision.
Check out the other advantages of health insurance policies.