What is the best time to upgrade a health insurance cover?

Anuj is a professional in his early 30s. His small family comprises himself, his wife and a child. He had bought a life insurance cover after his child was born and a health insurance cover with a sum assured of Rs2.5 lakh. He is worried that this may not be enough. He wants to find out whether he should upgrade, and how often.

Healthcare inflation is on the rise and the cover needs to be upgraded. The sum insured may be too low to even cover one hospital bill in the next few years, leave alone cover hospitalisation expenses in the retirement years. The increase in healthcare costs makes it necessary to periodically review the health cover and upgrade it in line with known current costs and expected future costs.

Postponing an upgrade to the later years may prove to be expensive. Insurance companies would be happy to upgrade when Anuj is young and healthy. Upgrading at a later age may have a two-fold disadvantage. One, it will attract higher premiums and two, if Anuj is diagnosed with a serious ailment like diabetes, thyroid or something worse, the costs of an upgrade will be too high, or the higher cover may be refused by the insurance company as it perceives the risks to be too high.

A single shot upgrade might need a higher premium, which can hurt the Anuj’s savings. Instead, a targeted upgrade can be planned for say, every 7 to 10 years. Anuj can make an investment instead of paying the premium, and build a corpus that will fund this upgrade. He can then take a single premium upgrade periodically, to bump up the cover as required.

Alternatively, Anuj can divide his savings between a health cover and a health corpus. The cover can be funded with savings and upgraded periodically to cover high-cost diseases and eventualities. The health corpus is simply an investment that is set aside, to be used in case there is a need. If there is no event of ill-health, the corpus can be added to the retirement corpus as he ages.


(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)