Sum insured in health insurance

The maximum amount that a policyholder receives from their insurance company is called the sum insured. The insurance company pays the sum insured to a policyholder only when they file a claim under the terms and conditions of the company. The sum insured gives different benefits in different insurance policies.

How does the sum insured benefit in health insurance?

If you are hospitalized for a health-related reason, the health insurance company will give you coverage up to the sum insured. If the actual expenditure exceeds the sum insured, then the surplus will have to be borne by the policyholder from their own pocket.

For example, a man names Rahul has a health insurance policy of Rs 5 lakhs. Now, Rahul needs to be hospitalized and the total bill comes up to Rs 4 lakhs. In this case, he will not have to pay any money from his own pocket. Instead, the insurance company will contact that hospital and settle the claim.

Suppose that Rahul has to be hospitalized again in the same year due to some other health problem, which costs Rs 1.25 lakhs. This time, the insurance company will pay only up to Rs 1 lakh as Rahul has already claimed four lakhs. Rahul will have to pay the additional amount (ie Rs 25,000) out of his own pocket.

(Read More: Policyholder Responsibilities During Health Insurance Claim Settlement)

Whenever a health emergency occurs in the life of the insured, the health insurance company covers that expense. Now, no one knows what kind of incident might occur in the future or how much it might cost. In such a situation, we should always keep in mind while choosing the sum insured that the premium should an amount that is easy to manage, otherwise you may face problems continuing the policy later. You should also keep in mind that the higher the sum insured, the higher the premium and the coverage. Therefore, there is a need to calculate your total earnings to decide the sum insured that will protect you and your family from health-related risks.

Keep in mind that sometimes, due to the high coverage, it becomes difficult to pay the premium on time. However, a grace period is available after the due date of payment of the premium. If the premium is not paid even within the grace period, then the policy can be cancelled

The sum insured for you can be decided based on the following factors:

• Age: Age plays an important role in deciding the sum assured. The younger you are when you buy health insurance, the lower the premium you will have to pay. Taking health insurance at an older age will also lead to an increase in the premium amount, as the risk of disease generally increases with age. This is why you are suggested to take the maximum sum insured possible, as soon as you can buy individual health insurance for yourself (which is usually 18).
• Current health status: While choosing an appropriate sum insured, you should be well aware of your health status as well as that of your family members. For this, you’ll need to assess the medical history, as pre-existing diseases sometimes increase the risks of hospitalization.
• Lifestyle: Life often gets hectic after starting a job or business and it is normal to feel stressed. In many jobs, there are targets that the employees have to meet monthly or responsibilities that weigh on their minds. In such cases, the stress increases a lot and can gradually lead to many diseases. Because of this, problems like headache, upset stomach, high blood pressure, chest pain, sexual health problems and sleep disturbances can occur. Apart from this, stress can also lead to mental health problems such as depression, panic attacks and anxiety. Taking a deeper look at your lifestyle can help you in choosing the right sum insured.
• Income: You may need to do some calculations to figure out your need for insurance. Suppose you have to take insurance and your age is 30 years, while you can work only till 58 years, at which point you will retire. As per this, you can earn only for the next 28 years, which can affect your sum insured.
• Prepare annual expenses chart: Taking a look at annual expenses means identifying the frequency under which you can pay premiums. Pay attention to ongoing expenses such as house or room rent, school fees and money spent on fuel, health care, groceries, hobbies and entertainment. Also consider recurring expenses like a vacation, gifts, etc. If you make a budget for yourself, then choosing the sum insured will not be a difficult task.
• Keep the goal in mind: There may come a time in life when your family will require a large lump sum amount. It could be for a wedding, higher education, foreign travel, retirement, etc. If you are already saving for these situations, it will help you get an idea of ​​how much premium you can manage for the sum insured. Make sure you save to meet your goals and if you are saving currently, assume that you may have to do more in the future. For example, if you want to plan for your first child three years from now, you will need more money to pay for the cost of caring for your baby after it is born.
• Add liabilities, subtract savings and investments: Keep track of all your liabilities like car loans, personal loans, home loans or any other type of loan. Avoid unnecessary expenses. Apart from this, there are many such websites on the Internet, by visiting which you will be able to calculate how much premium will be needed for how much sum insured. Apart from this, you will also be able to know for how long you have to pay that premium and how much difference it will make if you pay the premium monthly, quarterly, semiyearly or yearly.

(Read more: Which is the best health insurance)

It is important to understand what sum assured is, especially since the term can sound very similar to the sum insured. The meaning of the two is completely different.

Sum assured is a pre-determined amount that the insurance company agrees to pay you or your nominee. In this, the insurance company pays the customer in two ways - if an event that is covered by the insurance company occurs and when the term of the insurance is over. The sum assured in insurance is determined at the time of purchase of the policy and this amount cannot be changed during the entire policy term. Apart from this, the premium is also determined on the basis of the sum assured. In this, when the insurer pays the sum insured to you or your nominee, the policy terminates there.

The concept of sum assured is applicable to life insurance and guaranteed return insurance policies. In a guaranteed return insurance plan, you get assured returns in the mode of your choice. In this, you can choose to take returns in the form of a lump sum, regular income or life-income benefit. This plan gives a guaranteed insurance cover to protect your family.

Choosing the right sum assured makes the family not have to deal with financial problems in case of your absence, it is a great way to secure the future of the family. You can also extend the Guaranteed Return Insurance plan through add-on riders.

You can pay your premium at your preferred frequency like yearly, semiyearly, quarterly or monthly. Apart from this, you can also take a loan against your guaranteed life insurance plan. Guaranteed insurance plans are not taxed in India.

The premium you pay for these plans is tax-free under section 80C of the Income Tax Act, 1961. Both the death benefit (benefit on death) and the maturity of the policy are tax-free under section 10 (10D).

For example, suppose you have invested Rs 15 lakh in a guaranteed return insurance plan and you die during the policy tenure. In this case, the entire amount i.e. Rs 15 lakh will be paid to the nominee by the insurance company.

(Read more: Difference between health insurance and life insurance)

Following are some of the main differences between the sum insured and sum assured:

• Sum Insured: This is applicable to non-life insurance plans like home insurance, motor insurance, health insurance, etc.
• Sum Assured: This applies to life insurance and guaranteed return insurance policies.
• Sum Insured: It pays only the amount of loss or damages on a reimbursement basis.
• Sum Assured: In this, a pre-determined amount is paid to the insurer or the nominee once the policy matures or in case the life insured dies during the term of the policy.
• Sum Insured: In this, money does not usually come in hand; instead, you get service. But money can be received in case of reimbursement. In case of reimbursement, the bill is paid by the insured first. After that, the insurance company has to be given the necessary documents and then the company returns the money.
• Sum Assured: In this monetary benefit (money) is paid to the insured or the nominee.

Generally, life insurance plans give 'sum assured' and non-life insurance policies give 'sum insured'. But insurance companies these days have started offering policies that provide reimbursement of your medical bills as well as pre-determined benefits. Such dual-benefit plans are offered by both non-life and life insurance companies. A common example is the critical illness plan, which gives a lump-sum benefit to the insured if they suffer from any disease covered under the policy such as paralysis, heart attack or cancer. In a hospital cash policy, in which the insured is paid daily cash up to a pre-determined limit for as long as he remains in the hospital. Similarly, a surgical benefit plan entitles the policyholder to a pre-determined sum assured in case of surgery.

(Read more: Which is the cheapest health insurance)

Day by day, medical expenses are increasing and even more so during the COVID-19 period. The charges associated with the hospitals are a huge burden for the common person. In such a situation, it is always advisable to opt for a larger sum insured, as the bigger the sum insured, the higher the protection you will receive. Additionally, it helps account for inflation. If you buy a policy today, you may be opting for a sum insured that seems suitable given the cost of treatment presently. But the policy is for the long term. Suppose you keep renewing it for 10 years - the cost of treatment would have increased a lot by then. Chose your sum insured keeping in mind all the factors mentioned in this article.