Before we start, let us understand about the much-talked-about the "Rule of 72". Well, the Rule of 72 is a shortcut or rule of thumb used to have a fair guess about the number of years needed to double your money at a given annual rate. So, considering that the rate of return is 12%, your amount would then double itself in 72/12, which means 6 years. I am sure you must be wondering what the rule of 72 has got to do with the process of deciding the sum insured to choose the best health insurance plan. Let us understand this with a very simple example. Remember, the ice cream that cost Rs. 10 when you were a child, today comes for Rs. 50; that's the power of inflation. Currently India has 4.91% consumer price inflation, which is impacting every purchase we make. So, this means it will take approximately 15 more years for the ice cream to double from Rs. 50 to Rs. 100.
Similarly, a knee replacement surgery in India today costs an average of Rs. 2 lacs but the rate of medical inflation is always steeper than the rate of regular inflation. Currently, medical inflation is in the range of 8%. A simple calculation shows that in 9 years this cost will be 2X, in 18 years 4X and in 24 years 16X. Say, you are 35 years old today and your knees are working perfectly. But heaven forbid, when you turn 60 you may require a total knee replacement, which will cost you 16X of today’s cost, that's Rs. 32 lacs.
Think long-term when you buy insurance, because you will need the coverage when you get older, not now. Think of a hospital bill expense your friend or someone in the family may have had to pay today. Now multiply it by 16 and to arrive at the cost of that bill in the future. It is a common observation to see people going bankrupt because they were not able to afford the cost of healthcare, due to no or less money in hand. There are cases where people had to break investments that were made to enjoy a vacation, just to meet unplanned-for healthcare expenses. This clearly shows that your dreams and financial goals need protection in the form of Health Insurance.
We aren't asking you to select a specific sum insured. All we are saying is, do not underestimate the power of medical inflation. While automation can bring the cost of electric cars down, there may not be automation in medical fields and we will still rely on doctors.
How costly is it to get a high sum insured? Let's take an example; for a Rs. 1 crore sum insured the premium is not 20X more than what it is for Rs. 5 lacs sum insured. In fact, the premium increase is very little. It might not even be double. However, check with your agent, broker, or insurance company before arriving at an amount. Here's a hack to enjoy Rs. 1 crore coverage for health expenses, without paying the earth. Simply take a base policy of 5 lacs and a separate policy, as a top-up, of Rs 95 lacs.
Sounds confusing? Let us make it simpler for you. The base policy is your regular health insurance policy for Rs. 5 lacs, and the top-up is a separate policy. When your expenses for medical claims go above Rs. 5 lacs, the top-up covers the bills. For expenses below Rs. 5 lacs, the base policy covers it.
To make a long story short, as you get older, the cost of treatment will also increase to the tune of 16X, 32X or 64X of what it is today. Remember, you may complain about all your costs today, but when you think back on them in the future, they will seem affordable. Someday, you might be telling your grandchildren: when we were young, petrol cost 'only' Rs 100 a litre!