How does the Sum Insured work in Health Insurance?

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Health insurance is one of the best ways to protect both your family and yourself against the onslaught of any sudden medical crises. The most important component of the health insurance plan you own is the sum insured. The sum insured is the maximum cover available to pay for hospitalisation expenses as per the policy conditions in a year.

A few aspects of the sum insured -

  • Indemnity-based

    The sum insured is usually not offered as a benefit but an indemnity based cover. Indemnity based covers are covers that do not pay fixed amounts, but reimburse actual expenses. Unlike, say, a term insurance policy which pays a fixed amount in case of death.

    However, if your hospitalisation expenses go beyond the specified sum insured, you need to pay the balance from your own pocket.

  • Core feature of the policy

    While all other features in a product can be curtailed and withdrawn by the insurer, the sum insured in the policy cannot be reduced or increased by the insurer without your permission or request.

  • Linked benefits

    Many benefits are linked to the sum insured of your policy. For instance, the room eligibility can differ based on the sum insured. It could be a simple 1% of the sum insured or the category of the room will be dependent on the sum insured - for example, shared room for sum insured below 5 Lakhs, private room for 5 Lakhs, and no room rent limit for 10 Lakhs and above.

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Sum Insured Vs Sum Assured

While you know what the Sum Insured is now, the Sum Assured is a fixed benefit payable on the occurence of a specific event - which could be death, critical illness, or accidental disability.

Let’s see how they compare -

  Sum Assured Sum Insured
How it is paid A certain amount shall be paid out immediately if you pass away during the policy term. The conditions related to the Sum Assured vary across products. It is the fixed sum available to pay for your hospitalisation expenses in a given year. If the medical bill goes beyond this sum, you need to bear the rest.
How many times it is payable

It is usually paid only once in the lifetime of the policy.

For instance, A Critical Illness Policy only covers one insured event or illness over the course of your lifetime, the policy ceases once a claim is made and paid.

The payment is made as a reimbursement up to the sum insured limit. And, so, any number of claims can be paid, till there is balance sum insured available.

For instance, a health insurance policy allows you to make various claims for multiple valid events throughout your lifetime. In a given year, you can make any number of claims - until the total sum insured is exhausted.

Does The Sum Insured Come With An Expiry Date?

Health Insurance is refillable - on a yearly basis. If you have chosen a sum insured of 10 lakhs, you are covered up to Rs 10 lakhs per year. Renewing your policy after every policy year restores your entire sum insured. Renewal of the coverage is an important highlight of a health insurance policy.

When you essentially look at a Rs. 10 Lakhs cover - it is a yearly cover, which if used replenishes next year. Hence, if you have a Rs. 10 Lakh cover for 30 years, you technically can spend close to 30 X 10 Lakhs = 3 Crores in a span of 30 years.

This should specifically be noted, when you are contemplating accumulation of your personal fund instead of investing in a health insurance policy.


Manav has a health insurance policy with Rs 5 Lakh sum insured. A few years after paying the premiums, he gets hospitalised for surgery, and the entire sum insured is spent in one year. In the event he requires further hospitalisation during the same year, he will need to pay for the expenses out of his own pocket.

He needs to be hospitalised again, in the next year. If he renews his policy, he will receive the amount of Rs 5 lakhs again to help him with hospitalisation expenses. As long as he keeps renewing his health insurance policy and paying the premiums in a timely manner, he will receive the sum insured every year.

So, How Much Sum Insured Do You Need?

Health Insurance is a product that you must buy before you hit a disease or old age. The coverage should be for the time when you will need it the most. Hence, you must buy health insurance with a sum insured that is relevant before you hit your old age.

For instance, if you are currently 30 year old, and the average hospitalisation bill today for an individual you think is say Rs. 3 Lakhs, then you should estimate how much would be required when you hit, say, 60 years of age. You can calculate this estimated sum insured by applying compounding inflation of 6-8% over 30 years.

So, your sum insured requirement depends on -

Your current age

The hospital bill you estimate

The approximate inflation (take around 6-8% over 10+ years)e

  • Formula for calculating sum insured = (Current Hospital Bill X 1.06)^(60-Age)

    In the above case at 6% inflation year on year, Rs. 3 Lakhs will compound to a requirement of approximately Rs. 17 lakhs.

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How Can You Make Sure That You Have an Adequate Cover?

Upgrade the sum insured

You can upgrade your current sum insured at the time of policy renewal, if you feel that it is insufficient. You can do this by raising a request with the insurance company.

Important things to note -

  • The increase in sum insured will bring a significant increase in your premium as well.
  • The premium may also increase according to your age and pre-existing diseases. So, the best time to upgrade your sum insured will be when you are young and healthy.
No Claim Bonus

Almost all health insurance policies provide a No Claim Bonus, because of which you get a discount on your renewal premium or your sum insured is increased by a certain percentage. This varies from insurer to insurer.

Restoration of sum insured

The restoration benefit restores your sum insured once you exhaust in the policy year. Some policies have this as an inbuilt feature, while some provide it as an add-on. It ensures that you or your family members are not left without any cover in case the sum insured is exhausted. The conditions for this benefit may vary from insurer to insurer. So, check and understand the details before you go ahead.

Summing Up!

Choosing the Sum Insured in your health insurance policy is the most important decision of the process, since that will decide how financially secure you will be. This is the amount that will cover your medical expenses, which aren’t easy on the pocket! Make sure you pick a sufficient amount and renew your policy each year - to always have an untarnished protective bubble around you.