How much health cover do you need?
There is no universal thumb rule, but experts say it should be between Rs10 lakh and Rs1 crore on a family floater basis. This should ideally be achieved through a combination of a base policy and a super top-up policy.
“The metric for choosing a health insurance should not be premium but the medical cost that can come in future,” said Milind Tayde, head (employee benefits), Anand Rathi Insurance Brokers. “A combination of base plus super top up can help in keeping the premium cost down. The amount of cover should be based on age, family size, city and the existing insurance via employer. In case a parental cover is also being contemplated, it is worthwhile to consider a separate parents policy as the propensity of claim arising and claim cost being higher is elevated in the case of ageing parents.”
Having an employer-sponsored health insurance is always beneficial. This cover should be looked at as the first layer. But one should never rely on an employer sponsored cover above since the cover ceases with a job switch or the employer deciding to reduce the coverage or stop it altogether.
“I would encourage people to build their own health insurance cover during their working years, when they are younger and generally have more flexibility. The corporate policy can then sit on top of your personal protection,” said Harsimran Sandhu, professor, IMT Ghaziabad.
Medical inflation in India is at 14 per cent. This implies that the treatment costs double every 5 years. Before closing in on any health cover one needs to factor in this aspect.
Buying health insurance when the family is healthy is also important, as the insurer rewards them through smoother acceptance (straight through put policies), lower premium and wellness linked discounts. “I would look at the family’s age profile, number of members, location and financial capacity. A young family and a family with people in their 50s have very different requirements. The other point people miss with a family floater is that the cover is shared. If two members have major hospitalisation in the same year, the available cover get used up very quickly. For many families, I would look at a combination of a reasonable base policy and a super top-up rather than simply buying an extremely large base policy,” said Sandhu. “The objective is not to have an impressive-looking sum insured but to make sure a medical event doesn’t force you to liquidate your existing investments.”
There is a tendency in India to think of insurance as something you buy when there is a problem. With health insurance, that is precisely what you don’t want to do. If one is healthy today, take advantage of that. Establish your coverage and keep it in place. “You don’t buy fire insurance after the house catches fire. Health insurance is similar. You buy it when you don’t need it, so that it is there when you do,” said Sandhu.
And insurance decisions should be driven by risk, not premium. “The question I would ask is: ‘What happens to my financial plan if there is a Rs20–30 lakh medical expense?’ If the answer is that I have to break my fixed deposits, sell equity investments or dip into my retirement corpus, then I don’t have enough protection,” said Sandhu.
But that does not mean everyone should keep buying a bigger base policy every year. The cost has to be considered. A combination of base insurance, super top-up and one’s own liquidity can often provide a more sensible balance between protection and affordability. And the cover needs to be reviewed as the family ages. “The insurance requirement at 35 should not be the same as at 55,” said Sandhu.
Awareness has certainly improved, but from a wealth-management perspective, underinsurance is still a big problem in India. A person may have a health policy and still not be adequately protected. He may have a small personal policy, rely completely on his employer, or does not understand the practical impact of deductibles, exclusions and sub-limits. If one has serious medical events tomorrow, will one have to touch the money one has kept aside for children’s education or retirement? If the answer is yes, there is a gap in the financial plan.
Creating wealth is only part of wealth management. Protecting it from risks that can wipe out years of savings is equally important. So health insurance is not an expense; it is as an important part of protecting the family’s wealth.
