Health Insurance: What should be the ideal size of your medical cover in Tier-I and Tier-II cities?

Health Insurance: Health insurance has become expensive post-coronavirus pandemic because of inflated medical expenses such as admission fees, room rent, surgeries, medicines, etc. But it's also true that Indians realised the importance of medical insurance more than ever when the pandemic hit their kith and kin. It was the time when people used their savings or sold properties to foot medical bills.

A government data for 2020–21 says that in urban areas, 83.7 per cent of families paid out medical bills of their savings, with 8.5 per cent relying on loans.

Such a high percentage shows that suddenly, so many of them were depleted of their savings they had for the future or their emergency funds.

Health insurance at that stage would have helped them save their money considerably.

Health Insurance Premiums

In a survey conducted between 2017 and 2018, National Sample Survey Office says that 85.9 per cent of the rural population and 80.9 per cent of the urban population didn't have health insurance policies.

The survey also reported that out-of-pocket expenses for a single hospitalisation in private hospitals cost Rs 15,937 in rural areas and Rs 22,031 in urban areas. 

Siddharth Singhal, Business Head, Health Insurance, Policybazaar, says, "Medical inflation in India is around 14%, one of the highest across countries. The cost of treatment for common ailments that require hospitalisation has more than doubled in the last five years." 

The cost of treatment is higher in Tier-I and II cities than in rural areas.

But when purchasing a medical insurance policy, one often finds oneself in a confused state as to what should be the ideal insurance sum that can cover not only basic treatment but also serious or terminal diseases.

In this write-up, we will help you decide on medical insurance size through expert tips.

Bhaskar Nerurkar, Head, Health Administration Team, Bajaj Allianz General Insurance, says if one has a family, they should go for high-sum insurance.

"As individuals age, their healthcare needs tend to increase, making a higher sum insured prudent,especially for senior citizens. High coverage plans often cover costly medical treatments, surgeries, and specialised care, which can be expensive," says Nerurkar.     

Speaking about the size of health insurance in Tier 1 and II cities, Nerurkar says that one should see if their health insurance has any restriction on hospital room rent.

"As a thumb rule, one can check what the per day hospital room cost in an affordable medical facility. Generally, products have a 1% room rent restriction, and hence the sum insured should be decided based on this amount," he says.

Generally, people go for a low-sum insurance plan and purchase a super top-up to expand the cover.

But the problem with a low-sum insurance plan is that you can't spend all of its money on just one costly hospitalisation, there are spending restrictions related to diseases and individuals.

So, the primary coverage should be sufficient to cover expensive hospitalisations.

Super top-up or add-ons are rarely used, but they can't be ignored, especially in cases of terminal diseases or where treatments are expensive such as in cases of cancer.Shashi Kant Dahuja, Chief Underwriting Officer, Shriram General Insurance, says insurers in Tier-1 and Tier-II cities should go for primary cover of Rs 10 lakh.

"Tier 1 and 2 cities generally cover large urban areas with advanced infrastructure and a higher cost of living. Healthcare services are usually more accessible, but the cost of medical treatments and services can also be higher, so a coverage of around 10 lakh should be ideal health coverage," he says.

Dahuja says one should also consider the family's health history when deciding the amount for health insurance.

"It is crucial to strike a balance between adequate coverage and affordability. One must consider the family's medical history and evaluate the budget to choose a coverage amount."

Shashank Chaphekar, Chief Distribution Officer, ManipalCigna Health Insurance, says one can start with a medical insurance plan of Rs 10 lakh but they should review it every year.

"It is advisable to have a minimum of Rs 10 lakh health cover and depending on the affordability one should review the health cover and sum insured every year, so as to ensure that the family is adequately covered at any given point in time."

Chaphekar also advises having a critical illness plan for the earning member of the family.

"A critical illness plan is a good supplement to the health insurance portfolio because critical illnesses often come without prior warnings and treatments can be long-drawn and can take a major toll on the financial health of the person. Therefore, it’s important for the earning member of the family to buy critical illness cover as it takes this financial burden off the patient and safeguards finances."

Singhal of Policybazaar says that a basic plan of Rs 5 lakh can work, but one should go for a higher plan as they don't cost much.

"If you buy a health insurance policy with a sum assured of Rs 5 lakh, it would not be enough to cover most serious ailments such as cancer, chronic kidney diseases, and heart-related health conditions. Increasingly more customers are opting for Rs 1 crore health insurance plans, which are usually a combination of base plus super top-up plans from the same insurer. The Rs 1 crore combo plans come at only 10-15% extra cost."

While, a medical insurance of Rs 1 crore cover is rarely used in India, it can come handy if one needs medical assistance for long duration, or if one goes for treatment abroad.  

Adarsh Agarwal, Chief Distribution Officer, Digit General Insurance, says people living in Tier-I and Tier-II cities can go for different covers since costs of treatments are different.

"Most plans don't see a significant rise in premium if someone wants to increase their coverage by 2-3 times. For example, for a family of three (two adults and one child) living in Zone 1 where the oldest member is under 35 years old, the premium (excluding GST) for a Rs 5 lakh cover is Rs 10,711. They can double their coverage to Rs 10 lakh by merely paying Rs 2,141 more, triple their coverage to Rs 15 lakh by paying Rs 3,213 more, or bump their coverage to four times to Rs 20 lakh by paying Rs 4,069 more," says Agarwal.

He emphasises further, "Considering the rising healthcare costs, a family of three (2 adults and one child) living in Tier-1 city should ideally consider a coverage of Rs 15-25 lakh to adequately protect themselves. Similarly, a family living in Tier-2 or Tier-3 cities can consider a coverage of Rs 5-10 lakh."