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How much health insurance cover should you take?

Assuming eight percent inflation, medical costs could quadruple over the next two decades. A surgery that costs Rs 4-5 lakh today could become Rs 20 lakh over the next two decades. While a cover between Rs 5-10 lakh is adequate for a young family today, it needs to be regularly topped-up – to match the rise in health care costs.

A major surgery costs about Rs 4-5 lakh. Angioplasty or bypass surgery can set you back at least by about Rs 2-4 lakh, while kidney transplants costs at least Rs 4 lakh. Treatment for major illness like cancer can costs even more – upwards of Rs 10 lakh. Such high costs can upset your financial plans and delay achievement of financial goals.

By buying health insurance, one can mitigate financial risk emanating from such illnesses. 

What is health insurance?

It is an insurance coverage that pays for medical and surgical expenses incurred by the policyholder due to an illness. It is either reimbursed or paid directly to the network hospitals by the insurer.

How much health cover should you take? It depends on a couple of factors.


Inflation
If you were paying Rs 300 as consultation fees to your doctor a decade back, now it has risen to Rs 800 plus. Doctor or surgeon’s (first time) fees grew at a CAGR of 10.6 percent during the 10-year period ending Nov 2019, according to consumer inflation data provided for industrial workers.

While medicine costs rose moderately, testing and X-ray related costs grew more than the base inflation rate. In 2018-19, hospital and nursing charges had the highest inflation rate of 9.4 percent among the seven sub-components that constituted the healthcare index. 

Assuming eight percent inflation, medical costs could quadruple over the next two decades. A surgery that costs Rs 4-5 lakh today could become Rs 20 lakh over the next two decades. While a cover between Rs 5-10 lakh is adequate for a young family today, it needs to be regularly topped-up – to match the rise in health care costs. 

Sum assured for your health policy varies based on whether you are going it alone or taking an all-encompassing floater policy. A floater plan provides health cover for your whole family and works outs to be economical. However, it also depends on the age of family members.

Floater or Separate

Sum assured for your health policy varies based on whether you are going it alone or taking an all-encompassing floater policy. A floater plan provides health cover for your whole family and works outs to be economical. However, it also depends on the age of family members. Usually, the premium for such policies is fixed based on the eldest member in the family (more the age, more the premium). So, if you are a couple in your 30s with kids, floater works out to be economical. But not in your 50s. Moreover, it makes sense to take separate policies for your parents. 

Add-ons

There are add-on covers for critical illnesses, accidents, maternity and hospital cash. In case of critical illnesses, a lump sum amount is given on diagnosis of diseases like cancer, heart stroke and kidney failure or brain tumor - irrespective of your expenses. 

Personal accident cover compensates for disability from accidents including death. Similarly, there are add-ons for maternity benefits (after a waiting period of 2-4 years), while daily cash is paid on hospitalization which is not covered in the base medical cover policy. 
It is advisable to go for an add-on only if you really need it. 

Top-up options

If you have a health cover offered by your company, evaluate if it is adequate. Or else, top it up. This option is usually offered by the group insurers. Alternatively, you can also independently take extra cover from another general insurer. 

Using top-up with deductibles usually comes out cheaper. In case of a deductible, you agree to pay a certain part of the claim in exchange for a lower premium.

Read the fine print

Look through the policy documents thoroughly for any exclusions or sub-limits. For instance, hospital expenses could be capped to a certain percentage of sum assured or some diseases excluded. Bone diseases, cervical cancer and alternatively therapies such as acupressure, naturopathy or acupuncture are not usually covered in the health policy.

Moreover, insurers have different way of offering cover for pre-existing diseases with the waiting period varying from two to four years. 

Takeaway

A base health cover with a sum assured of Rs 5-10 lakh is adequate for a young family. However, you need to top-it up regularly, as medical costs escalate. Keep it simple and go for add-ons only if it is necessary. 

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