What is Sum Insured in Health Insurance?
Are you new to the concept of health insurance? Are you buying a health cover for the first time? Then chances are high that you must be feeling overwhelmed with the terminology and wordings involved in the whole process. Among all these terms, the one that is of utmost importance and should catch your attention first is ‘sum insured’.
That’s the one thing that will define the coverage and protection your health insurance policy will offer to you and your family. Let’s take a detailed look.
What is sum insured in health insurance?
Sum insured in insurance refers to the maximum compensation for damages that your insurance company would pay you in a year.
For health plans, it would refer to the maximum compensation you would get from your insurer in case of hospitalisation or treatment of a disease in a given year.
It should be noted here that sum insured is not a monetary benefit but the compensation only. It means that you get financial coverage only against your actual medical expenses and bills. You would not be paid anything extra above that.
So, suppose you buy health insurance policy with a sum insured of Rs. 5 lakh. And you were hospitalised that year and had to pay Rs. 2 lakh in bills. Your health policy will compensate you only up to Rs. 2 lakh. The insurer would not be liable to pay the remaining Rs. 3 lakh of your sum insured at the end of policy term or at any later stage.
In case you were hospitalised again that same year, and your hospital bill that time was Rs. 4 lakh. Then you would be compensated up to Rs. 3 lakh (the remaining amount from your sum insured). The rest of your expenses (Rs. 1 lakh) would have to be paid from your own pocket.
What is sum assured in health insurance?
Though sum insured and sum assured in health insurance sound similar, they are two very different concepts.
While sum insured refers to the maximum compensation a policyholder can get in a year, sum assured is a pre-determined fixed amount of money that is given to a policyholder in case of an eventuality (like death, diagnosis of a critical illness, etc).
For example, some health insurance policies may offer an add-on benefit of personal accident coverage. In such cases, a policy may offer say Rs. 5 lakh as sum assured in case of permanent disability or death in an accident. So, unfortunately if that happens, the insurer would pay the policyholder Rs. 5 lakh without asking for any hospital bills or proof of expenditure.
Factors to keep in mind while deciding on sum insured
You can increase or decrease your sum insured on the basis of your requirements, lifestyle and income. Higher sum insured means higher premium. If you want more financial coverage from your health policy, you will have to shell out a higher amount of money year after year in the form of an annual premium.
Alternatively, you can choose to spend less on your annual premiums and lower your sum insured. But that may lead to inadequate coverage, which may result in your savings getting exhausted in times of a medical emergency.
Here are some of the key factors you should keep in mind while deciding what should be the ideal sum insured for you:
1) Age: If you are old and hitting the retirement age, chances are high that you might need treatment for some or the other ailments in the near future due to aging issues. In such a case, you should not compromise on the sum insured of your health policy.
2) City of residence: Sum insured should be higher for those living in metro cities as healthcare expenses are significantly higher there. So, keep the general healthcare cost of your city in mind while deciding your sum insured.
3) Inflation: Don’t go on the current healthcare cost while deciding your sum insured. Always keep the inflation factor in mind and calculate on what would be a sufficient amount say after 10 years from now.
4) History of family illnesses: If you have a history of family illnesses like heart issues, hypertension, diabetes, etc., then your sum insured should be adequate enough to provide you coverage against treatment of these diseases.
5) Individual or family floater plan: If you are planning to buy a family floater plan, it is important for you to have a higher sum insured amount so that all your family members are adequately protected in case of multiple claims in the same year.
Having a health policy with high sum insured is important to get adequate financial assistance in times of a medical emergency. Low sum insured can completely defeat the purpose of having an insurance policy as you may end up bearing the burden of your medical expenses yourself.
Disclaimer: The above information is indicative in nature. For more details on the risk factor, terms and conditions, please refer to the Sales Brochure and Policy Wordings carefully before concluding a sale.