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Importance of sum insured and sum assured in health insurance

Team AckoOct 11, 2021

Health insurance jargons are often confusing and leave you with many questions. But resolving this confusion is necessary, as it helps you buy better coverage for you and your family. In this article, we will discuss the two most commonly used health insurance terms — sum insured and sum assured. Knowing their meaning will help you clear the concept and select the right monetary coverage for your health insurance policy.

Sum Insured and Sum Assured in Health Insurance

What is sum insured in health insurance?

Sum insured is the limit up to which the health insurance company will pay for your medical expenses that are covered under the policy. This is the upper limit or the maximum coverage the insurer will offer for the selected health plan, if your claim is approved.

Example

Suppose 19-year-old Rahul is covered under his father’s Family-floater Health Insurance Plan. He got diagnosed with malaria and had to be hospitalised. The hospital bill amounted to Rs. 75,000. Rahul’s father had bought health insurance coverage for the whole family with a sum insured of Rs. 5 lakhs. Most of Rahul’s hospital bill was borne by the insurance company, except for the deductibles as per policy terms.

Six months later, Rahul’s sister, 14-year-old Shreya, had a serious road accident while returning from school. She suffered major injuries and was hospitalised for several weeks. The hospital bill was around Rs. 4.5 lakhs as surgery costs were also involved.

Here is how the sum insured aided Rahul’s father financially during both instances.

Parameters Incident 1: Rahul's hospitalisation (Malaria) Incident 2: Shreya’s accident
Hospital bill Rs. 75,000 Rs. 4,50,000
Claim amount Rs. 75,000 Rs. 4,25,000
Out-of-pocket expense Rs. 7,500 (10% deductibles) Rs. 67,500 (10% deductibles + remaining hospital bill)
Remaining sum insured Rs. 4,25,000 Rs. 0

Rahul’s father had to bear 10% of the hospital bill under deductibles during both incidents (find the meaning of deductibles in the bottom section of this article). Notice that the sum insured was exhausted during incident 2, i.e. Shreya’s accident.

The total out of pocket expense for Rahul’s father for both incidents was Rs. 75,000 (7,500+ 67,500). This amount would have been Rs. 5.25 lakhs if he did not have any health insurance coverage. This is how the sum insured for a Family-floater Health Insurance Plan works. 

Factors to help you calculate the right sum insured for your policy

Here is a list of factors that will help you with the calculation for buying the right sum insured for your health insurance policy.

  • Type of health insurance plan

    There are multiple types of health insurance plans available in the market for you to choose from. There are Individual Plans, Family-floater Plans (example explained above), Employer's Group Plans, Critical illness Plans, etc. Thus, the sum insured of your health policy will depend upon the type of plan you choose. For example, the sum insured of a Family-floater can be a bit higher than that of an Individual Plan because more members are insured under the single policy.

  • Number of members covered

    Some plans like Family-floater and Employer's Group Plan cover more insured members as compared to Individual Plans or Senior Citizen Policies. Select sum insured based on the number of people the plan is supposed to cover. This will allow you some room to use the sum insured for every medical emergency during the policy period. Lower sum insured can get exhausted within a few claims. This can increase your out-of-pocket expenses.

  • Health history and age of the insured

    Some people may have medical issues that need frequent medical treatment—for example, asthma or chronic diabetes. You must select a higher sum insured if you or a covered family member suffers from a recurring health condition. The age of the insured also plays a role here. Consider opting for a higher sum insured if your health insurance policy covers senior citizens. Elder folks may require more medical attention as compared to the young ones.

  • Income and number of dependents

    Your annual income can help you gauge how much sum insured you or the dependents might need. If annual income is low, then consider saving some amount to pay the premium of a health plan that has a high sum insured. This will help you get more coverage and you can be stress-free about medical emergencies for the entire policy period.Consider the number of dependents as well when you buy the policy. Always remember, the more the dependants, the higher must be the sum insured.

  • Quality of medical facilities in your area

    Some regions, especially cities, might provide advanced medical treatment that can be more expensive as compared to other places. Keeping this in mind while selecting the amount of sum insured will help you decide if you need a policy with more coverage. 

  • Existing health insurance coverage

    Always calculate the total usable sum insured while buying a new health insurance policy. If you are a working individual, you (and dependents) might be covered under Employer's Health Insurance Plan. But such plans may not be helpful in the long term as the policy ends with the end of employment. Here additional coverage for example an Individual Health Insurance policy can act as a backup.

Having multiple health insurance policies can also be fruitful because as per the latest Standardisation Guidelines from the regulator (IRDAI), you can claim against more than one policy to cover the full cost of a medical event.

For example

Consider you have almost exhausted the sum insured of your Family-floater policy and face a new medical emergency. You are covered under a Group Medical Policy from the employer as well. In this situation, you can claim X amount from the Family-floater policy and the remaining Y amount under the Group Medical Policy as per policy terms.

IRDAI will allow you to claim for the same event from both policies to get maximum financial coverage for the cost of the new medical emergency.

3 benefits of choosing the right sum insured

Choosing the right sum insured will give you the following benefits.

  1. Maximum financial coverage

    Insufficient sum insured can increase your out-of-pocket expenses. However, when you choose the right sum insured, you can be financially stress-free about health issues. This is because the insurer will help you pay for treatment and other coverages as mentioned in the plan.

  2. No hassle of multiple claims

    As mentioned earlier, the regulator has allowed multiple claims to cover the maximum cost of a medical event. But this should be your last resort. Making multiple claims requires time. The claim settlement process can take time and delay financial assistance at the time of need. You can avoid this hassle by choosing a sufficient sum insured for the health plan.

  3. Option to make claims until the end of the policy period

    Lower sum insured can get exhausted faster, and you will be exposed to financial liabilities for other claims. Selecting the correct sum insured will help you claim until the end of the policy period without buying additional coverage.

Importance of choosing the right sum insured

Let's understand the importance of choosing the right sum insured with an example.

Ms. Jacob is a 32-year old lady who purchased an Individual Health Insurance Policy with a sum insured of Rs. 2 lakhs. She has hereditary asthma and needs medical assistance regularly. The cost of each hospitalisation is approximately Rs. 50,000. She was hospitalised 4 times during the policy period. Unfortunately, she met with an accident and had to be hospitalised. But she had to bear the cost of hospitalisation as the sum insured got exhausted due to previous claims.

The above example will help you understand that choosing a slightly higher sum insured would have helped Ms. Jacob cover the maximum cost of medical treatments. She had to bear the entire financial burden of the accident and any other claims she made after exhausting the sum insured. This could have been avoided.

It is crucial that you gauge the requirements and health history before choosing the sum insured for your policy. Else, the out-of-pocket expenses will increase and this liability will be more than the cost of a health plan with a higher sum insured.

Role of sum insured in general insurance

In general insurance, sum insured refers to the limit up to which you can make claims to cover the cost of medical treatment covered under the policy. It can be used partially and a balanced amount will be available for the next claim until the sum insured gets exhausted or till the plan expires, whichever is earlier.

Sum insured can be used by one or more insured members as per the terms and conditions of the health insurance policy. It is flexible for floater plans, this means all insured members have access to the available amount of sum insured and is not fixed for any one member. 

What is sum assured in health insurance?

Sum assured is a fixed amount that is decided between the policyholder and the insurance company. The insurer will pay the entire amount if an insured medical event takes place. Let’s see an example of sum assured in health insurance.

Mr. Dinkar is a 50-year-old person with a family history of cancer. He made a proactive decision of buying a Critical Illness Policy at the age of 47 years. This year, he got diagnosed with intestinal cancer and needed financial aid to cover the cost of cancer treatment.

The sum assured of Mr. Dinkar's Critical Illness Policy is Rs. 25 lakhs. He made a claim by adding supporting documents of the diagnosis and the insurer approved his claim as per policy terms upon verifying the documents. This financial support helped Mr. Dinkar focus on recovery and today he is a cancer survivor.

You must have noticed that sum assured is a lump sum benefit in health insurance. You can use this amount to cover any contingency related to a major medical event. You can use the amount to cover the cost of treatment or save some amount for the dependents. You have the freedom and flexibility to use sum assured as per your requirements.

Difference between sum insured and sum assured in health insurance 

The following table of differences will help you understand the concepts of sum insured and sum assured in health insurance.

Sum insured Sum assured
Multiple claims can be made until the sum insured gets exhausted. Usually, the entire sum assured is paid against one claim i.e. sum assured is a lump sum payout.
Sum insured is used for indemnity based policies. Meaning, it must be used to cover only the amount lost against an insured event. For example, the cost of medical treatment. Can be used as per the policyholder’s requirement when the insured event occurs as this is a fixed benefit.
Sum insured is not a maturity benefit. Sum assured can be a maturity benefit based on the category of health insurance, i.e. in case of life insurance.

Note that sum insured is applicable to general insurance while sum assured is used in both general and life insurance health plans.

Frequently asked question

We have answered some common queries related to the topic in the following section.

What is the correlation between health insurance premium and sum insured?

Usually, you can buy a policy with a high sum insured by paying a higher cost. Premium and sum insured are directly proportional to each other.

Is it possible to change the sum insured of my health insurance plan?

It is possible to enhance the sum insured of the policy with the help of top-up or super top-up health insurance plans.

What are deductibles in health insurance?

Deductibles are a fixed amount that a policyholder must bear at the time of claims. In health insurance, the applicable deductible is usually fixed at 10% of the claim amount. However, this can differ depending on the terms and conditions of the policy.

Can I increase the sum assured in health insurance?

Most health insurance policies, like Critical Illness Insurance, have a fixed sum assured for the plan. However, you can get in touch with the insurer and check if you have the option to enhance it by paying an additional premium.

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IRDAI Registration No: 157

Category: Non-Life Insurance

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