Recently, the nation was shocked by the news of a young girl’s death in Gurgaon. It was reported that the seven-year-old girl’s family spent Rs 18 lakh on her dengue treatment at a private hospital. Despite the costly treatment, the girl unfortunately did not survive. Indians everywhere took note of how trying this was for the family. Not only did they drain their wealth, they also lost a family member. Dengue is widespread in many Indian cities. It is natural to wonder how we would manage our money in case a family member were to fall terribly ill. How do we fund such an expensive hospitalisation?

Use health insurance
Many Indians still believe that they can only fund a hospitalisation with their hard-earned wealth. Worryingly, over 80 per cent of Indians don’t have any form of health insurance, as per a 2016 National Sample Survey. So many of these people keep their earnings in a liquid state thinking that they may need it urgently someday — especially if a family member falls ill. This isn’t advisable. While you should keep an emergency fund worth six to 12 months of your current income, you should fund your hospitalisation with a health insurance policy. Normally, such a policy costs no more than a few thousand rupees a year. It also allows you to divert your hard-earned money towards more meaningful pursuits such as wealth creation through mutual funds or pre-payment of loans.

how to calculate requirement
Firstly, nobody should go without health insurance. It is as important as paying your rent or EMIs, or buying grocery. It is a basic necessity, without which your family’s wealth is at risk. So how do you calculate your health coverage needs? Here are some thoughts to consider.

Where You Live: Hospitalisation in tier-1 cities are comparatively expensive compared to tier 2 and 3 cities. If you are in a big city, you may want to evaluate the costs imposed by your local hospitals.

Age: The older you are, the larger your health cover requirement. This is why a 40-year-old would pay a higher premium than, say, a 25-year-old who is healthier. As you age, you should aim for higher coverage.

Health: Have you undergone hospitalisation or treatments in the past? Is there a chance you may undergo the same treatment in the future? If yes, you should consider the treatment costs, adjusted for inflation, as your minimum coverage required.

Your Income: A handy thumb rule is having coverage that is at least 100 per cent of your current annual income. Let’s say you are 30 and earn Rs 5 lakh, your cover should be at least that amount.

Family History: Many diseases are hereditary. You must examine the health history of your immediate family members and understand if there are health risks you have inherited. Calculating the treatment costs of those diseases, you can arrive at a base coverage amount.

Kind Of Treatment: Each health insurance has its own offering. For example, one policy may offer a daily room rent limit of Rs 3,000. Suppose this is inadequate to get a single occupancy room in a tier- 1 hospital. Therefore, you should buy a policy that allows you the comfort level you seek in a treatment.

Ideal composition - buying a Rs 20 lakh cover

Each individual can compute his unique insurance need with the parameters mentioned above. Let’s try the example used above — that of a 30-year-old person, earning Rs 500,000 annually.

Base Coverage
Start off with a basic health cover of Rs 5,00,000. As a young person in sturdy health, there is a low chance that you will exhaust this limit. A no-frills cover for you would start from around Rs 5,200. You can pay a higher premium to avail better features.

Top-Up Coverage
Now, you must consider a top-up cover. Let’s say your health risks are higher. Instead of buying a new, regular policy, you can buy a top-up policy which is only put to use once you exhausted your base coverage. For a top-up of Rs 15 lakh, your annual premiums begin from Rs 1,947 a year, which is extremely low.

Therefore, with a cost of around Rs 7,200, you have ensured yourself a coverage of Rs 20 lakh a year. This would keep you protected in most health situations. The key is to buy the cover while you're young. Since health policies have life-long renewability, you will save significantly on premium costs.