Buying Substantial Health Insurance Coverage : Seemingly Unnecessary, Actually Necessary

The amount of health insurance coverage required is a function of prevailing healthcare costs and inflation thereon. For any major city in India, the ideal coverage amount advisable would be Rs 20 lakh per member of a family. This equates to a total coverage of Rs 60 lakh for a family of three and Rs 80 lakh for a family of four. This represents the amount of coverage required in one's personal capacity. It can be purchased as a combination of a base and super top up policies.

The numbers mentioned above may seem unreasonably high. A lot of my clients express surprise and shock when I mention these numbers to them. This is more so because they usually have existing corporate coverage. But there is good reason behind such an amount being advisable. There are also clear benefits to having this much coverage. And I am going to highlight these very aspects in today's post.

Why It Makes Sense

To understand this we must first understand the essence of health insurance. It protects our income against the risk of paying hefty medical bills. It is therefore a tool aimed at risk management. Managing risk is extremely challenging. This is because most events are dynamic. Unfavourable situations can crop up at any time. And we usually get very little time to respond to them. Risk management must therefore be built into the way we plan for events and respond to them. In other words we must be prepared for negative outcomes, even though we don’t expect them to happen. Effective risk management must enable us to effectively resist the adverse consequences of negative outcomes.

This is no different when it comes to health insurance. We don't buy health insurance because we expect to develop major health issues that require hospitalisation. We buy it so that we are prepared beforehand in the event of such a situation arising. We also see situations where the available coverage is insufficient to meet the cost of a particular bill. This is a major risk.

Buying a health insurance policy with a substantial coverage amount covers this very risk. It virtually bulletproofs us against medical costs. So if affordability is not a concern, it makes sense to buy a substantial base policy. Doing this offers certain key benefits which I will now explain.

Negates Room Rent Sub Limits

It is always preferable to go for a policy without room rent sub limits. But there may be certain situations where they cannot be avoided. Room rent sub limits are usually set at 1% of sum assured per day.

For a base policy of say Rs 30 lakh this amounts to Rs 30,000 per day. This increases our chances of being able to afford our desired category of rooms. Room rent sub limits would not be a concern in such a case. Healthcare costs differ from region to region. Having a sense of prevailing healthcare costs in our region of domicile would help us buy the ideal amount of coverage.

Lower Chances Of Touching The Super Top Up Policy

Claiming from top up policies can sometimes be a tedious process. This is true even if the base and super top up policies are purchased from the same insurer. Buying a substantial amount in the base policy increases the chances of claims being met out of the base policy. The super top up policy would therefore be less likely to come into play.

Closing Thoughts

Buying substantial health insurance coverage increases the impact of future price hikes. This is because price hikes are usually steeper in case of high value policies. This is more true in situations when insurers start bleeding claims. Such hikes are independent of age related hikes. But health insurance is an essential prerequisite for good financial health. Therefore such price hikes are worth living with.

Those who have each of the following are less likely to be impacted by healthcare costs.

The first 4 points mentioned above fundamentally reduce the risk of contracting major health issues. The last one allows us to absorb the impact of significant healthcare costs without compromising financial stability. But our personal and professional lives today are very demanding. We may therefore lack the time and/or willingness to adhere to the first 4 points. And it would take most of us a very long time to satisfy the fifth. Therefore buying substantial health insurance coverage proves to be the most viable way to guard against ever increasing healthcare costs.