Dr Dhiraj explores why ₹5 lakh health covers are outdated and guides you in determining adequate protection on DifferentTruths.com for security.

After discussing health insurance for senior citizens in the last column, a question naturally follows. How much health insurance should a person or family actually have? Is a cover of ₹5 lakh enough? Should one consider ₹10 lakh, ₹20 lakh, or even more?

The answer is not as simple as a single number because healthcare costs, family circumstances, and financial situations vary widely. Yet this query is among the most important in personal finance, as being underinsured can be nearly as risky as being uninsured.

A person may diligently save for retirement, invest for children’s education, and build an emergency fund over many years. But one major hospitalisation can unsettle even the most carefully prepared financial plan if the insurance coverage turns out to be inadequate.

The ₹5 Lakh Myth

For many years, a health insurance cover of ₹5 lakh was considered more than sufficient. In fact, a large number of employer-provided health insurance policies and retail products in India were built around this figure. For a long time, it seemed like a very large amount of money. But healthcare costs in India have changed dramatically.

A cover that appeared generous ten or fifteen years ago may no longer provide the same level of protection today. The assumption that ₹5 lakh is automatically enough has slowly become one of the biggest myths in health insurance planning.

Healthcare Costs Have Changed Dramatically

Consider a few examples from present-day private healthcare. A knee replacement in a good private hospital can cost anywhere between ₹3 lakh and ₹6 lakh. Cardiac procedures such as angioplasty or bypass surgery can easily cost ₹4 lakh to ₹8 lakh, depending upon the hospital and the city. Certain cancer treatments involve expenses spread over several months and may run into several lakhs.

Even a prolonged stay in an intensive care unit can result in a significant bill. A few extra days in the ICU, combined with investigations, specialist consultations, medicines, and consumables, can substantially increase the overall cost of treatment. Suddenly, a ₹5 lakh insurance cover no longer appears very large. The purpose of these examples is not to create fear but to create perspective. Healthcare costs today are very different from what many families remember from a decade ago.

Medical Inflation Never Stops

Most of us notice inflation in our daily lives. Food becomes more expensive, fuel prices rise, and household expenses gradually increase. Healthcare follows the same trend, often at an even faster pace.

A procedure costing ₹5 lakh today may cost substantially more ten years later. New medical technologies, sophisticated equipment, specialised treatments, and rising hospital costs all contribute to increasing healthcare expenses. This means that health insurance planning cannot be based solely on present-day costs. It must also consider future realities.

The policy purchased today should ideally protect not only against today’s medical bills but also against tomorrow’s.

One Size Does Not Fit All

There is no universal amount of health insurance that suits everyone equally. A twenty-five-year-old single professional living in a small town does not face the same financial risks as a fifty-five-year-old individual with dependants and ageing parents. The amount of insurance required depends upon several factors.

Age matters because medical needs generally increase over time. Family size matters because more people mean greater exposure to healthcare expenses. Existing medical conditions matter because they increase the probability of hospitalisation. Lifestyle and occupation can also influence health risks. This is why two families with similar incomes may still require completely unique levels of insurance protection.

Why Where You Live Matters

Location plays a surprisingly important role in healthcare planning. Medical treatment costs in metropolitan cities are often significantly higher than in smaller towns. A procedure costing ₹4 lakh in one city may cost ₹6 lakh or ₹7 lakh in another. Hospital room charges, specialist fees, diagnostic investigations, and post-treatment care can vary considerably.

Families living in cities such as Mumbai, Delhi, Bengaluru, Hyderabad, or Gurugram often need to consider higher levels of protection because treatment costs there can be substantially higher than the national average. Healthcare planning, therefore, cannot ignore geography.

Should Everyone Buy the Highest Cover Possible?

The obvious question then arises: should everyone simply purchase the highest available cover? Not necessarily. Health insurance should be adequate and remain practical and affordable. A young professional in the early stages of a career may find a cover of ₹10 lakh reasonably adequate, particularly if employer coverage is also available. A young family living in a large city may feel more comfortable with the protection of ₹15 lakh or ₹20 lakh. Families with ageing parents or individuals at higher healthcare risk may require even greater protection.

The objective is not to arrive at a perfect number. The objective is to avoid a situation in which a single major hospitalisation creates long-term financial stress.

Insurance Is Not for Average Years

Many people make mistakes when estimating insurance requirements.

They think in terms of their average medical expenses. They say, “I have never spent more than ₹50,000 on treatment” or “We hardly visit hospitals.” But insurance is not purchased for average years. It is purchased for exceptional years. Nobody buys fire insurance because their house catches fire every year. Similarly, nobody purchases health insurance expecting annual hospitalisation. Insurance exists to protect us against rare but financially damaging events. This is perhaps the most important principle in determining how much health insurance is enough.

The Role of Employer Insurance

Many salaried individuals assume that their company-provided health insurance is sufficient. Employer insurance is undoubtedly valuable. However, relying entirely on it can create risks. Employment situations change. People switch jobs, take career breaks, become entrepreneurs, or retire. A personal health insurance policy creates continuity and ensures that healthcare protection remains linked to the individual rather than the employer. This is why many financial planners recommend building independent health insurance even when corporate coverage already exists.

The Emerging Case for Higher Protection

An increasing number of financially aware families are now opting for higher overall protection. Rather than relying solely on a modest base plan, many families are gradually increasing their health insurance coverage to match changing healthcare realities.

The objective is not to buy insurance out of fear. The objective is to ensure that savings, investments, retirement plans, and children’s futures are not disrupted by a single unexpected medical event.

Think of Health Insurance as a financial shock absorber.

Health insurance is often viewed simply as a product that pays hospital bills. In reality, health insurance does much more than simply pay hospital bills. It protects long-term financial goals by ensuring that years of disciplined savings and investments are not disrupted by a medical emergency. It protects retirement savings, reduces the need to liquidate investments at unfavourable times, and safeguards goals like children’s education or home ownership from unexpected healthcare expenses. Most importantly, it provides families with financial breathing room during emotionally difficult periods, allowing them to focus on treatment and recovery rather than worrying about securing funds. In many ways, health insurance acts as a financial shock absorber. The illness may still occur, but its financial consequences become far more manageable and far less disruptive to the family’s overall financial well-being.

The Final Words

The right amount of health insurance is not determined solely by what feels affordable today. It should reflect rising healthcare costs, family responsibilities, medical inflation, and the financial consequences of a major illness. The most relevant question is, if a major medical event happens tomorrow, will my family remain financially secure? Because health insurance is not merely about paying hospital bills. It is about ensuring that one illness does not become a long-term financial crisis.

Over the past several weeks, we have spent considerable time understanding one of the most important pillars of personal finance—health insurance. We explored why insurance matters, how to choose a policy, why claims get rejected, the risks of mis-selling, and how families can protect themselves against rising healthcare costs.

As we conclude this phase of the series, it is perhaps a good time to take a short break from insurance and turn our attention to another fascinating and often misunderstood area of personal finance. Beginning next week, we will start a new series on corporate bonds—an investment avenue that many people have heard about but few truly understand.

Picture design by Anumita Roy

Dr. Dhiraj Sharma

Dr Dhiraj Sharma, faculty in Management Studies at Punjabi University, Patiala, writes at the intersection of economy, finance, governance, culture, literature, and social change. His interdisciplinary work examines how individuals and institutions adapt to economic and societal shifts. Beyond academia, he pursues creative writing—fiction, non-fiction, poetry—and excels as an avid birder, nature/wildlife photographer, and painter in realistic/semi-impressionist styles. He actively supports government/NGO initiatives for bird watching, butterfly monitoring, and natural habitat conservation. He is our Associate Editor: Economy, Finance and Governance.